As filed with the Securities and Exchange Commission on June 24 , 2015
File No.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
J. Alexanders Holdings, Inc.
(Exact name of registrant as specified in its charter)
Tennessee | 47-1608715 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
3401 West End Avenue, Suite 260 Nashville, Tennessee (Address of principal executive offices) |
37203 (Zip Code) |
Registrants telephone number, including area code: 615-269-1900
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class to be so Registered |
Name of Each Exchange on which Each Class is to be Registered |
|
Common Stock, par value $0.001 per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and small reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
The information required by the following Form 10 Registration Statement items is contained in the sections identified below of the information statement (the Information Statement), attached hereto as Exhibit 99.1, each of which are incorporated into this Form 10 Registration Statement by reference.
Item 1. Business.
The information required by this item is contained under the sections captioned Summary, Risk Factors, Forward-Looking Statements, The Distribution, Description of Capital Stock, Business, Certain Relationships and Related Party Transactions, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Where You Can Find More Information of the Information Statement and is hereby incorporated by reference.
Item 1A. Risk Factors.
The information required by this item is contained under the sections captioned Risk Factors and Forward-Looking Statements of the Information Statement and is hereby incorporated by reference.
Item 2. Financial Information.
The information required by this item is contained under the sections captioned Summary, Capitalization, Unaudited Pro Forma Consolidated Financial Information, Selected Historical Consolidated Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations, and Index to Financial Statements and the financial statements referenced therein of the Information Statement and is hereby incorporated by reference.
Item 3. Properties.
The information required by this item is contained under the section captioned Business of the Information Statement and is hereby incorporated by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is contained under the section captioned Security Ownership of Certain Beneficial Owners and Management of the Information Statement and is hereby incorporated by reference.
Item 5. Directors and Executive Officers.
The information required by this item is contained under the section captioned Management of the Information Statement and is hereby incorporated by reference.
Item 6. Executive Compensation.
The information required by this item is contained under the sections captioned Management and Executive Compensation of the Information Statement and is hereby incorporated by reference.
Item 7. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is contained under the sections captioned Management, Executive Compensation and Certain Relationships and Related Party Transactions of the Information Statement and is hereby incorporated by reference.
Item 8. Legal Proceedings.
The information required by this item is contained under the section captioned BusinessLegal Proceedings of the Information Statement and is hereby incorporated by reference.
Item 9. Market Price of and Dividends on the Registrants Common Equity and Related Stockholder Matters.
The information required by this item is contained under the sections captioned Summary, The Distribution, Dividend Policy, Executive Compensation and Description of Capital Stock of the Information Statement and is hereby incorporated by reference.
Item 10. Recent Sales of Unregistered Securities.
The information required by this item is contained under the section captioned Description of Capital Stock of the Information Statement and is hereby incorporated by reference.
Item 11. Description of Registrants Securities to be Registered.
The information required by this item is contained under the sections captioned The Distribution, Dividend Policy and Description of Capital Stock of the Information Statement and is hereby incorporated by reference.
Item 12. Indemnification of Directors and Officers.
The information required by this item is contained under the section captioned Description of Capital StockLimitation of Liability and Indemnification of Directors and Officers of the Information Statement and is hereby incorporated by reference.
Item 13. Financial Statements and Supplementary Data.
The information required by this item is contained under the sections captioned Unaudited Pro Forma Consolidated Financial Information, Selected Historical Consolidated Financial Data and Index to Financial Statements and the financial statements referenced therein of the Information Statement and is hereby incorporated by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) | Financial Statements |
The information required by this item is contained under the sections captioned Unaudited Pro Forma Consolidated Financial Information, Selected Historical Consolidated Financial Data and Index to Financial Statements and the financial statements referenced therein of the Information Statement and is hereby incorporated by reference.
(b) | Exhibits |
We are filing the following documents as exhibits to this Registration Statement:
Exhibit
|
Exhibit Description |
|
2.1 | Form of Separation and Distribution Agreement, dated , 2015, between Fidelity National Financial, Inc. and J. Alexanders Holdings, Inc. | |
3.1 | Form of Amended and Restated Charter of J. Alexanders Holdings, Inc. | |
3.2 | Form of Amended and Restated Bylaws of J. Alexanders Holdings, Inc. | |
3.3 | Form of Second Amended and Restated LLC Agreement of J. Alexanders Holdings LLC | |
10.1 | Form of Tax Matters Agreement between Fidelity National Financial, Inc. and J. Alexanders Holdings, Inc. * | |
10.2 | Form of Management Consulting Agreement between Black Knight Advisory Services, LLC and J. Alexanders Holdings, LLC | |
10.3 | Form of Management Company Grant Agreement | |
10.4 | Form of Indemnification Agreement | |
10.5 | Amended and Restated Loan Agreement, dated December 9, 2014, by and between J. Alexanders, LLC and Pinnacle Bank | |
10.6 | Second Amended and Restated Loan Agreement, dated May 20, 2015, by and between J. Alexanders, LLC and Pinnacle Bank | |
10.7 | J. Alexanders Holdings, LLC 2015 Management Incentive Plan | |
10.8 | Form of J. Alexanders Holdings, LLC Unit Grant Agreement | |
10.9 | Form of J. Alexanders Holdings, Inc. 2015 Equity Incentive Plan | |
10.10 | Form of Non-Qualified Stock Option Award Agreement under the J. Alexanders Holdings, Inc. 2015 Stock Incentive Plan | |
10.11 | J. Alexanders Corporation Deferred Compensation Plan | |
10.12 | Employment Agreement, dated December 26, 2008, by and among J. Alexanders Corporation and Lonnie J. Stout II | |
10.13 | Amended and Restated Salary Continuation Agreement, dated December 26, 2008, with Lonnie J. Stout II | |
10.14 | Severance Benefits Agreement, dated September 13, 1989, between J. Alexanders Corporation and Lonnie J. Stout II, as amended | |
10.15 | Letter Agreement, dated July 30, 2012, by and among J. Alexanders Corporation, Fidelity National Financial, Inc., Fidelity Newport Holdings, LLC, American Blue Ribbon Holdings, Inc. and Lonnie J. Stout II | |
10.16 | Employment Agreement, dated December 26, 2008, by and among J. Alexanders Corporation and J. Michael Moore | |
10.17 | Amended and Restated Salary Continuation Agreement, dated December 26, 2008, with J. Michael Moore | |
10.18 | Letter Agreement, dated July 30, 2012, by and among J. Alexanders Corporation, Fidelity National Financial, Inc., Fidelity Newport Holdings, LLC, American Blue Ribbon Holdings, Inc. and J. Michael Moore |
Exhibit
|
Exhibit Description |
|
10.19 | Employment Agreement, dated December 26, 2008, by and among J. Alexanders Corporation and Mark A. Parkey | |
10.20 | Amended and Restated Salary Continuation Agreement, dated December 26, 2008, with Mark A. Parkey | |
10.21 | Letter Agreement, dated July 30, 2012, by and among J. Alexanders Corporation, Fidelity National Financial, Inc., Fidelity Newport Holdings, LLC, American Blue Ribbon Holdings, Inc. and Mark A. Parkey | |
10.22 | Letter Agreement, dated July 1, 2014, by and among J. Alexanders, LLC and Mark A. Parkey | |
21.1 | Subsidiaries of J. Alexanders Holdings, Inc. | |
99.1 | Information Statement of J. Alexanders Holdings, Inc., preliminary and subject to completion, dated June , 2015 |
* | To be filed by amendment. |
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned hereunto duly authorized.
J. Alexanders Holdings, Inc. | ||
By: |
/s/ Lonnie J. Stout, II |
|
Name: | Lonnie J. Stout, II | |
Title: | President and Chief Executive Officer |
Dated: June 24, 2015
Exhibit 2.1
SEPARATION AND DISTRIBUTION AGREEMENT
BY AND BETWEEN
FIDELITY NATIONAL FINANCIAL, INC.
AND
J. ALEXANDERS HOLDINGS, INC.
DATED AS OF [ ], 2015
TABLE OF CONTENTS
Page | ||||||||
Article I DEFINITIONS | 2 | |||||||
Section 1.1 |
Definitions | 2 | ||||||
Section 1.2 |
General Interpretive Principles | 7 | ||||||
Article II THE PRE-DISTRIBUTION TRANSACTIONS | 8 | |||||||
Section 2.1 |
Restructuring, Recapitalization and Other Transactions | 8 | ||||||
Section 2.2 |
The Separation and Related Transactions | 8 | ||||||
Section 2.3 |
Conditions Precedent to Consummation of the Pre-Distribution Transactions | 9 | ||||||
Article III THE DISTRIBUTION | 10 | |||||||
Section 3.1 |
Actions Prior to the Distribution | 10 | ||||||
Section 3.2 |
The Distribution | 11 | ||||||
Section 3.3 |
Conditions to Distribution | 11 | ||||||
Article IV SURVIVAL AND INDEMNIFICATION; RELEASE | 12 | |||||||
Section 4.1 |
Survival of Agreements | 12 | ||||||
Section 4.2 |
Indemnification by JAX | 13 | ||||||
Section 4.3 |
Indemnification by FNF | 13 | ||||||
Section 4.4 |
Insurance | 14 | ||||||
Section 4.5 |
Procedures for Indemnification of Third Party Claims | 14 | ||||||
Section 4.6 |
Procedures for Indemnification of Non-Third Party Claims | 15 | ||||||
Section 4.7 |
Survival of Indemnities | 15 | ||||||
Section 4.8 |
Remedies Cumulative | 15 | ||||||
Section 4.9 |
Ancillary Agreements | 16 | ||||||
Section 4.10 |
Mutual Release | 16 | ||||||
Article V ANCILLARY AGREEMENTS | 17 | |||||||
Section 5.1 |
Tax Matters Agreement | 17 | ||||||
Section 5.2 |
Management Consulting Agreement | 17 | ||||||
Section 5.3 |
Restructuring Documents | 17 | ||||||
Article VI CERTAIN ADDITIONAL COVENANTS | 17 | |||||||
Section 6.1 |
Consents for Business | 17 | ||||||
Section 6.2 |
Additional Consents | 18 | ||||||
Section 6.3 |
Further Assurances | 18 | ||||||
Section 6.4 |
Future Activities | 19 | ||||||
Section 6.5 |
Insurance Matters | 19 | ||||||
Article VII ACCESS TO INFORMATION | 21 | |||||||
Section 7.1 |
Agreement for Exchange of Information | 21 | ||||||
Section 7.2 |
Ownership of Information | 21 | ||||||
Section 7.3 |
Compensation for Providing Information | 21 | ||||||
Section 7.4 |
Record Retention | 22 |
- i -
TABLE OF CONTENTS
Page | ||||||||
Section 7.5 | Limitation of Liability | 22 | ||||||
Section 7.6 |
Other Agreements Providing for Exchange of Information | 22 | ||||||
Section 7.7 |
Production of Witnesses; Records; Cooperation | 22 | ||||||
Section 7.8 |
Confidentiality | 23 | ||||||
Section 7.9 |
Privileged Information | 24 | ||||||
Article VIII NO REPRESENTATIONS OR WARRANTIES | 25 | |||||||
Section 8.1 |
NO REPRESENTATIONS OR WARRANTIES | 25 | ||||||
Article IX TERMINATION | 25 | |||||||
Section 9.1 |
Termination | 25 | ||||||
Section 9.2 |
Effect of Termination | 25 | ||||||
Article X MISCELLANEOUS | 26 | |||||||
Section 10.1 |
Complete Agreement; Representations | 26 | ||||||
Section 10.2 |
Costs and Expenses | 26 | ||||||
Section 10.3 |
Governing Law | 26 | ||||||
Section 10.4 |
Notices | 26 | ||||||
Section 10.5 |
Amendment, Modification or Waiver | 27 | ||||||
Section 10.6 |
No Assignment; Binding Effect; No Third Party Beneficiaries | 27 | ||||||
Section 10.7 |
Counterparts | 27 | ||||||
Section 10.8 |
DISPUTE RESOLUTION | 28 | ||||||
Section 10.9 |
Specific Performance | 28 | ||||||
Section 10.10 |
Forum | 28 | ||||||
Section 10.11 |
WAIVER OF JURY TRIAL | 28 | ||||||
Section 10.12 |
Interpretation | 29 | ||||||
Section 10.13 |
Severability | 29 | ||||||
Section 10.14 |
No Set-Off | 29 |
EXHIBITS | ||
Amended and Restated Certificate of Incorporation of JAX | Exhibit A | |
Amended and Restated Bylaws of JAX | Exhibit B | |
Form of Tax Matters Agreement | Exhibit C | |
Form of Management Consulting Agreement | Exhibit D | |
SCHEDULES | ||
Surviving FNF Group and JAX Group Agreements | Schedule 2.3(b) | |
Transaction Expenses | Schedule 10.2 |
- ii -
SEPARATION AND DISTRIBUTION AGREEMENT
SEPARATION AND DISTRIBUTION AGREEMENT, dated as of [ ], 2015, by and between FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation ( FNF ), and J. ALEXANDERS HOLDINGS, INC., a Tennessee corporation ( JAX and, together with FNF, the Parties ).
RECITALS
WHEREAS, the Board of Directors of FNF determined that it is appropriate, desirable and in the best interests of FNF to separate the JAX Business (as defined below) and the FNF Business (as defined below) into two independent companies (the Separation ), on the terms and subject to the conditions set forth in this Agreement (as defined below), to provide greater flexibility for the management, capital requirements and growth of the JAX Business while ensuring that FNF can allocate appropriate time and resources on the development of the FNF Business;
WHEREAS, to effect the Separation, JAX (as defined below) intends to retain ownership and possession of all JAX Assets (as defined below) and FNF intends to retain ownership and possession of all FNF Assets (as defined below);
WHEREAS, to further effect the Separation, JAX intends to remain solely liable for all JAX Liabilities (as defined below) and FNF intends to remain solely liable for all FNF Liabilities (as defined below);
WHEREAS, to further effect the Separation, and as an integral part thereof, FNF intends to cause the Restructuring (as defined below) to occur before the Separation;
WHEREAS, following the Restructuring and the Separation, FNF intends to distribute on a pro rata basis to holders of issued and outstanding shares of FNFV Group common stock, par value $0.0001 per share ( FNFV Common Stock ), other than shares of FNFV Common Stock held in the treasury of FNF, all of the issued and outstanding shares of common stock of JAX, par value $.001 per share (the JAX Common Stock ) owned by FNF, by means of a dividend of the JAX Common Stock to FNFs stockholders (the Distribution ), on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, it is the intention of the Parties that, for United States federal income tax purposes, that the Restructuring and Distribution are together intended to qualify as a tax-free reorganizations off pursuant to Sections 368(a)(1)(D) and 355 of the Code;
WHEREAS, the Board of Directors of FNF (i) determined that the Restructuring, the Separation, the Distribution and the other transactions contemplated by this Agreement and the Ancillary Agreements (as defined below) are in furtherance of and consistent with its business strategy and are in the best interests of FNF and (ii) approved this Agreement and the Ancillary Agreements;
WHEREAS, the Restructuring, the Separation, the Distribution and the other transactions contemplated by this Agreement and the Ancillary Agreements shall be consummated in the order and in the manner agreed by the Parties; and
WHEREAS, it is appropriate and desirable to set forth in this Agreement the principal corporate transactions required to effect the Separation and the Distribution and certain other agreements that will govern certain matters relating to these transactions and the relationship of FNF and JAX and their respective Subsidiaries (as defined below) following the Distribution.
1
AGREEMENTS
NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:
Article I
DEFINITIONS
Section 1.1 DEFINITIONS . As used in this Agreement, the following terms shall have the meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined) set forth below:
Action means any claim, demand, action, cause of action, suit, countersuit, arbitration, litigation, inquiry, proceeding or investigation by or before any Governmental Authority or any arbitration or mediation tribunal or authority.
Affiliate means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified Person; provided , however , that for purposes of this Agreement, no member of either Group shall be deemed to be an Affiliate of any member of the other Group. As used herein, control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise.
Agreement means this Separation and Distribution Agreement, as the same may be modified, amended, restated or otherwise supplemented from time to time in accordance with the terms hereof.
Ancillary Agreements means the Management Agreement, the Tax Matters Agreement, the Restructuring Documents and any other instruments, assignments, documents and agreements executed in connection with the implementation of the transactions contemplated by this Agreement.
Asset means any right, property, claim or asset, whether real, personal or mixed, tangible or intangible, of any kind, nature and description, whether accrued, contingent or otherwise, and wherever situated and whether or not carried or reflected, or required to be carried or reflected, on the books of any Person.
Balance Sheet has the meaning assigned to such term in the definition of JAX Assets.
Business means the JAX Business and/or the FNF Business, as the context requires.
Code means the Internal Revenue Code of 1986, as amended.
Consents means any consents, waivers, notices, reports or other filings to be made, or any registrations, licenses, permits, authorizations to be obtained from, or approvals from, or notification requirements to, any third parties, including any Governmental Authority.
Dispute Escalation Notice has the meaning assigned to such term in Section 10.8 .
Distribution has the meaning assigned to such term in the Recitals hereto.
Distribution Agent means Computershare Limited.
2
Distribution Agent Agreement has the meaning assigned to such term in Section 3.1(b) .
Distribution Date means the date on which the Distribution shall be effected, such date to be determined by, or under the authority of, the Board of Directors of FNF in its sole and absolute discretion.
Effective Time means the time at which the Distribution occurs on the Distribution Date.
Exchange Act means the United States Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.
FNF has the meaning assigned to such term in the Preamble hereto.
FNF Business means all businesses and operations of the FNF Group, other than the JAX Business.
FNF Assets means all Assets of the FNF Group other than the JAX Assets.
FNFV Common Stock has the meaning assigned to such term in the Recitals hereto.
FNF Group means FNF and each Person that will be a direct or indirect Subsidiary of FNF immediately after the Distribution and each Person that is or becomes a member of the FNF Group after the Distribution, including any Person that is or was merged into FNF or any such direct or indirect Subsidiary.
FNF Indemnified Parties has the meaning assigned to such term in Section 4.2 .
FNF Liabilities means all Liabilities of FNF, other than the JAX Liabilities.
FNF Parties has the meaning assigned to such term in Section 4.10(b) .
FNF Releasors has the meaning assigned to such term in Section 4.10(a) .
FNFV means Fidelity National Financial Ventures, LLC, a Delaware limited liability company, and wholly-owned subsidiary of FNF.
Governmental Authority means any federal, state, local, foreign or international court, government, department, commission, board, bureau or agency, or any other regulatory, self-regulatory, administrative or governmental organization or authority, including the NYSE.
Group means the FNF Group and/or the JAX Group, as the context requires.
Indemnified Party has the meaning assigned to such term in Section 4.3 .
Indemnifying Party means JAX, for any indemnification obligation arising under Section 4.2 , and FNF, for any indemnification obligation arising under Section 4.3 .
Information means all information of either the FNF Group or the JAX Group, as the context requires, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including non-public financial information, studies, reports, records, books, accountants work papers, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other Software (as defined in the definition of Intellectual Property ), marketing plans, customer data, communications by or to attorneys, memos and other materials prepared by attorneys and accountants or under their direction (including attorney work product), and other technical, financial, legal, employee or business information or data.
3
Information Statement means the information statement and any related documentation distributed to holders of FNFV Common Stock in connection with the Distribution, including any amendments or supplements thereto.
Intellectual Property means all intellectual property and other similar proprietary rights in any jurisdiction, whether owned or held for use under license, whether registered or unregistered, including any and all such rights in and to: (i) trademarks, trade dress, service marks, certification marks, logos, and trade names, and the goodwill associated with the foregoing (collectively, Trademarks ); (ii) patents and patent applications, and any and all divisions, continuations, continuations-in-part, reissues, continuing patent applications, reexaminations, and extensions thereof, any counterparts claiming priority therefrom, utility models, patents of importation/confirmation, certificates of invention, certificates of registration, design registrations or patents and like rights (collectively, Patents ); inventions, invention disclosures, discoveries and improvements, whether or not patentable; (iii) copyrights, writings and other works of authorship ( Copyrights ); (iv) trade secrets (including, those trade secrets defined in the Uniform Trade Secrets Act and under corresponding foreign statutory Law and common law), Information, business, technical and know-how information, business processes, non-public information, proprietary information and confidential information and rights to limit the use or disclosure thereof by any Person (collectively, Trade Secrets ); (v) software, including data files, source code, object code, application programming interfaces, databases and other software-related specifications and documentation (collectively, Software ); (vi) domain names and uniform resource locators; (vii) moral rights; (viii) privacy and publicity rights; (ix) any and all technical information, Software, specifications, drawings, records, documentation, works of authorship or other creative works, ideas, knowledge, invention disclosures or other data, not including works subject to Copyright, Patent or Trademark protection; (x) advertising and promotional materials, whether or not copyrightable; and (xi) claims, causes of action and defenses relating to the enforcement of any of the foregoing; in each case, including any registrations of, applications to register, and renewals and extensions of, any of the foregoing with or by any Governmental Authority in any jurisdiction.
Inter-Group Indebtedness means any intercompany receivables, payables, accounts, advances, loans, guarantees, commitments and indebtedness for borrowed funds between a member of the FNF Group and a member of the JAX Group; provided, that Inter-Group Indebtedness shall not include any contingent Liabilities and accounts payable arising pursuant to the Ancillary Agreements, any agreements with respect to continuing transactions between a member of the FNF Group and a member of the JAX Group and any other agreements entered into in the ordinary course of business.
JAX Assets means, without duplication:
(i) all of the outstanding shares of all classes of capital stock of (or other equity interests in) JAX Subsidiaries and joint ventures owned (either of record or beneficially) by JAX or a JAX Subsidiary, as of the Effective Time;
(ii) all of the Assets included on the unaudited pro forma consolidated balance sheet of JAX, including the notes thereto, as of March 29, 2015, that is included or incorporated by reference in the Registration Statement (the Balance Sheet ) to the extent such Assets would have been included as Assets on a consolidated balance sheet of JAX, and the notes thereto, as of the Effective Time (were such balance sheet and notes to be prepared) on a basis consistent with the determination of Assets included on the Balance Sheet;
(iii) all other Assets that are of a nature or type that would have resulted in such Assets being included as Assets on a consolidated balance sheet of JAX, and the notes thereto, as of the Effective Time (were such balance sheet and notes to be prepared) on a basis consistent with the determination of Assets included on the Balance Sheet;
(iv) all Assets, if any, expressly contributed, assigned, transferred, conveyed or delivered to any member of the JAX Group pursuant to the Ancillary Agreements;
4
(v) the contract rights, licenses, Trade Secrets (as defined in the definition of Intellectual Property ), know-how, and any other rights and Intellectual Property, and any other rights, claims or properties (including any and all rights as an insured party under any FNF insurance policy), in each case of any member of the JAX Group and as of the Effective Time; and
(vi) all other Assets that are held by any member of the JAX Group as of the Effective Time and that relate primarily to, are used primarily in or held primarily for use in, or otherwise arise primarily from the operation of the JAX Business.
JAX Business means the business and operations conducted by the JAX Group from time to time, whether before, at or after the Effective Time, including, without limitation, the business and operations conducted by the JAX Group, as more fully described in the Information Statement.
JAX Bylaws means the Bylaws of JAX substantially in the form attached hereto as Exhibit B , with such changes as may be agreed to by the Parties.
JAX Certificate of Incorporation means the Certificate of Incorporation of JAX substantially in the form attached hereto as Exhibit A , with such changes as may be agreed to by the Parties.
JAX Claims has the meaning assigned to such term in Section 4.10(b) .
JAX Common Stock has the meaning assigned to such term in the Recitals hereto.
JAX Group means JAX and each Person that will be a direct or indirect Subsidiary of JAX immediately before the Distribution (but after giving effect to the Restructuring) and each Person that is or becomes a member of the JAX Group after the Distribution, including any Person that is or was merged into JAX or any such direct or indirect Subsidiary.
JAX Holdings means J. Alexanders Holdings, LLC, a Delaware limited liability company, which, following the Restructuring, will be a wholly-owned subsidiary of JAX.
JAX Indemnified Parties has the meaning assigned to such term in Section 4.3 .
JAX Liabilities means, without duplication:
(i) all outstanding Liabilities included on the Balance Sheet, to the extent such Liabilities would have been included on a consolidated balance sheet of JAX, and the notes thereto, as of the Effective Time (were such balance sheet and notes to be prepared) on a basis consistent with the determination of Liabilities included on the Balance Sheet;
(ii) all other Liabilities that are of a nature or type that would have resulted in such Liabilities being included as Liabilities on a consolidated balance sheet of JAX, and the notes thereto, as of the Effective Time (were such balance sheet and notes to be prepared) on a basis consistent with the determination of Liabilities included on the Balance Sheet;
(iii) all Liabilities to the extent relating to, arising out of or resulting from any terminated, divested or discontinued business or operations of the JAX Business;
(iv) all Liabilities expressly assumed by any member of the JAX Group pursuant to this Agreement or the Ancillary Agreements; and
(v) all Liabilities to the extent relating to, arising out of or resulting from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing before, at or after
5
the Effective Time, in each case to the extent such Liabilities relate to, arise out of or result from (w) any JAX Asset, (x) the JAX Business, (y) any service or function used by the JAX Group at shared locations or (z) any service or function performed by any member of the FNF Group for (but not exclusively for) the JAX Business.
JAX Parties has the meaning assigned to such term in Section 4.10(a) .
JAX Releasors has the meaning assigned to such term in Section 4.10(b) .
Law means any applicable foreign, federal, national, state, provincial or local law (including common law), statute, ordinance, rule, regulation, code or other requirement enacted, promulgated, issued or entered into, or act taken, by a Governmental Authority.
Liabilities means all debts, liabilities, obligations, responsibilities, response actions, Losses, damages (whether compensatory, punitive, consequential, treble or other), fines, penalties and sanctions, absolute or contingent, matured or unmatured, liquidated or unliquidated, foreseen or unforeseen, on- or off-balance sheet, joint, several or individual, asserted or unasserted, accrued or unaccrued, known or unknown, whenever arising, including those arising under or in connection with any Law, or other pronouncements of Governmental Authorities constituting an Action, order or consent decree of any Governmental Authority or any award of any arbitration tribunal, and those arising under any contract, guarantee, commitment or undertaking, whether sought to be imposed by a Governmental Authority, private party, or a Party, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, or otherwise, and including any costs, expenses, interest, attorneys fees, disbursements and expense of counsel, expert and consulting fees, fees of third party administrators, and costs related thereto or to the investigation or defense thereof.
Loss means any claim, demand, complaint, damage, loss, obligation, liability, cost or expense arising out of, relating to or in connection with any Action, including reasonable attorneys, accountants, consultants and experts fees and expenses.
Management Agreement means the Management Consulting Agreement to be entered into between Black Knight Advisory Services, LLC and JAX Holdings, substantially in the form attached hereto as Exhibit D , with such changes as may be agreed to by the Parties.
Management Co. means Black Knight Advisory Services, LLC, a Deleware limited liability company.
NewCo means initially, a newly formed wholly-owned subsidiary of FNFV organized solely for the purpose of holding a 1% membership interest in JAX Holdings in connection with the Restructuring, which following the Restructuring will be a wholly-owned subsidiary of JAX.
NYSE means the New York Stock Exchange, Inc.
Parties has the meaning assigned to such term in the Preamble hereto.
Person means any natural person, corporation, general or limited partnership, limited liability company or partnership, joint stock company, joint venture, association, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any Governmental Authority.
Pre-Distribution Transactions means, collectively, the Restructuring and the Separation.
Privileged Information has the meaning assigned to such term in Section 7.9(a) .
Recapitalization has the meaning assigned to such term in Section 2.1(b) .
Record Date means the date to be determined by the Board of Directors of FNF in its sole and absolute discretion as the record date for determining the holders of FNFV Common Stock entitled to receive shares of JAX Common Stock pursuant to the Distribution.
6
Registration Statement means the Registration Statement on Form 10 of JAX relating to the registration under the Exchange Act of the JAX Common Stock, including any amendments or supplements thereto.
Related Claims means a claim or claims against an FNF insurance policy made by each of FNF and/or its insured parties, on the one hand, or JAX and/or its insured parties, on the other hand, filed in connection with Losses suffered by each of FNF and JAX arising out of the same underlying transaction, transactions, event or events.
Restructuring means, collectively, (i) the transfer by FNFV to NewCo of a 1% membership interest in JAX Holdings, (ii) the transfer by FNFV to JAX of its entire interest in NewCo, (iii) the contribution by all member of JAX Holdings, other than NewCo, of their membership interests in JAX Holdings to JAX, in exchange for shares of JAX Common Stock, and (iv) the distribution by FNFV to FNF of all of FNFVs shares of JAX Common Stock.
Restructuring Documents means, collectively, the contracts, agreements, arrangements, certificates, instruments, Consents and other documents to be entered into, approved, authorized, confirmed and/or ratified, by the respective parties thereto, to implement or effect the Restructuring in the manner contemplated by this Agreement or otherwise relating to, arising out of or resulting from the transactions contemplated by this Agreement or the Restructuring, in each case in such form or forms and with such changes as may be agreed to by the Parties.
SEC means the United States Securities and Exchange Commission.
Separation has the meaning assigned to such term in the Recitals hereto.
Subsidiary means, with respect to any Person, any other Person of which such first Person (either alone or through or together with any other Subsidiary of such first Person) owns, directly or indirectly, a majority of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such other Person.
Tax Matters Agreement means the Tax Matters Agreement to be entered into between FNF and JAX, substantially in the form attached hereto as Exhibit C , with such changes as may be agreed to by the Parties.
Third Party Claim has the meaning assigned to such term in Section 4.5(a).
Transaction Expenses has the meaning assigned to such term in Section 10.2 .
Section 1.2 GENERAL INTERPRETIVE PRINCIPLES . (a) Words in the singular shall include the plural and vice versa, and words of one gender shall include the other gender, in each case, as the context requires, (b) the words hereof , herein , hereunder , and herewith and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement and not to any particular provision of this Agreement, and references to Article, Section, paragraph, Exhibit and Schedule are references to the Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified, (c) the word including and words of similar import when used in this Agreement shall mean including, without limitation, unless otherwise specified and (d) any reference to any federal, state, local or non-U.S. statute or Law shall be deemed to also refer to all rules and regulations promulgated thereunder, in each case as amended from time to time, unless the context otherwise requires.
7
Article II
THE PRE-DISTRIBUTION TRANSACTIONS
Section 2.1 RESTRUCTURING, RECAPITALIZATION AND OTHER TRANSACTIONS . On or before the Distribution Date (but in all events, before the Distribution), and subject to satisfaction or waiver of the conditions set forth in Section 2.3 :
(a) the Parties shall effect the Restructuring;
(b) following the Restructuring, the JAX Common Stock shall be recapitalized (the Recapitalization ) such that the number of shares of JAX Common Stock issued and outstanding and owned by FNF immediately before the Effective Time shall be in an amount calculated on the basis of the following: one (1) share of JAX Common Stock with respect to every [ ( )] shares of FNFV Common Stock issued and outstanding immediately before the Distribution (excluding shares held in the treasury of FNF).
Section 2.2 THE SEPARATION AND RELATED TRANSACTIONS .
(a) (i) The Parties acknowledge that the Separation, subject to the terms and conditions hereof and of the Ancillary Agreements, will result in (A) JAX directly or indirectly operating the JAX Group and the JAX Business, owning all of the JAX Assets and being liable for all of the JAX Liabilities and (B) FNF directly or indirectly operating the FNF Group and the FNF Business, owning all of the FNF Assets and being liable for all of the FNF Liabilities. Notwithstanding anything herein to the contrary, this Section 2.2(a)(i) shall not apply to any Assets or Liabilities contributed, assigned, transferred, conveyed, licensed, delivered and/or assumed under any Ancillary Agreement, which shall be governed by the terms thereof.
(ii) Subject to any Ancillary Agreement and to the extent that before the Effective Time, (A) any member of the FNF Group owns or is in possession of any JAX Asset or any member of the JAX Group owns or is in possession of any FNF Asset or (B) any member of the FNF Group is liable to any third party for any JAX Liability or any member of the JAX Group is liable to any third party for any FNF Liability, FNF and JAX shall, and shall cause the respective members of their Groups to, cooperate and use their respective commercially reasonable efforts to obtain the necessary Consents to, and shall, contribute, assign, transfer, convey and/or deliver any FNF Asset or JAX Asset, as the case may be, and/or assume any FNF Liability or JAX Liability, as the case may be, such that, on or before the Effective Time, JAX or a member of the JAX Group owns and is in possession of the JAX Assets and is solely liable for the JAX Liabilities and FNF or a member of the FNF Group owns and is in possession of the FNF Assets and is solely liable for the FNF Liabilities.
(b) Termination of Certain Agreements . All contracts, licenses, agreements, commitments or other arrangements, formal or informal, between any member of the FNF Group, on the one hand, (i) and any member of the JAX Group, on the other hand, or (ii) guarantying any obligation of any member of the JAX Group, on the other hand, in each case in existence on or before the Distribution Date, shall be automatically settled, cancelled, assigned, assumed or terminated by the Parties at the Effective Time, except (A) for (x) such agreements specifically set forth on Schedule 2.3(b) attached hereto, (y) this Agreement and (z) each Ancillary Agreement (including each other agreement or instrument expressly contemplated by this Agreement or any Ancillary Agreement to be entered into by any of the Parties, any of the members of their respective Groups or any other Person), (B) for any contracts, licenses, agreements, commitments or other arrangements to which any Person is a party in addition to either Party or any member of either Group, or (C) as otherwise agreed to in good faith by the Parties in writing on or after the date hereof. From and after the Distribution Date, no member of either Group shall have any rights or obligations under any such settled, cancelled, assigned, assumed or terminated contract, license, agreement, commitment or arrangement with any member of the other Group.
8
(c) Settlement of Inter-Group Indebtedness . Except with respect to the agreements specifically set forth on Schedule 2.3(b) , the Parties shall use their commercially reasonable efforts to settle all amounts payable in connection with any Inter-Group Indebtedness (if any) on or before the Distribution Date.
(d) Guaranteed Obligations .
(i) FNF and JAX shall cooperate, and shall cause their respective Groups to cooperate, to terminate, or to cause a member of the JAX Group to be substituted in all respects for any member of the FNF Group in respect of, all obligations of such member of the FNF Group under any JAX Liability for which such member of the FNF Group may be liable, as guarantor, original tenant, primary obligor or otherwise. If such termination or substitution is not effected by the Distribution Date, (A) JAX shall indemnify and hold harmless the relevant FNF Indemnified Party for any Liability arising from or relating thereto, and (B) without the prior written consent of FNF, from and after the Distribution Date, JAX shall not, and shall not permit any member of the JAX Group to, amend, renew or extend the term of, increase its obligations under, or transfer to a third Person, any loan, lease, contract or other obligation for which any member of the FNF Group is or may be liable, unless all obligations of the FNF Group with respect thereto are thereupon terminated by documentation reasonably satisfactory in form and substance to FNF.
(ii) FNF and JAX shall cooperate, and shall cause their respective Groups to cooperate, to terminate, or to cause a member of the FNF Group to be substituted in all respects for any member of the JAX Group in respect of, all obligations of such member of the JAX Group under any FNF Liability for which such member of the JAX Group may be liable, as guarantor, original tenant, primary obligor or otherwise. If such termination or substitution is not effected by the Distribution Date, (A) FNF shall indemnify and hold harmless the relevant JAX Indemnified Party for any Liability arising from or relating thereto and (B) without the prior written consent of JAX, from and after the Distribution Date, FNF shall not, and shall not permit any member of the FNF Group to, amend, renew or extend the term of, increase its obligations under, or transfer to a third Person, any loan, lease, contract or other obligation for which any member of the JAX Group is or may be liable, unless all obligations of the JAX Group with respect thereto are thereupon terminated by documentation reasonably satisfactory in form and substance to JAX.
Section 2.3 CONDITIONS PRECEDENT TO CONSUMMATION OF THE PRE-DISTRIBUTION TRANSACTIONS . The obligations of the Parties to consummate each of the Pre-Distribution Transactions is subject to the prior or simultaneous satisfaction, or waiver by FNF in its sole and absolute discretion, of each of the following conditions:
(a) final approval of each of the Pre-Distribution Transactions shall have been given by the Board of Directors of FNF in its sole and absolute discretion; and
(b) each of the conditions precedent to the consummation of the Distribution set forth in Section 3.3 hereof (other than Section 3.3(j) ) shall have been satisfied or waived by FNF in its sole and absolute discretion.
Each of the foregoing conditions is for the benefit of FNF and FNF may, in its sole and absolute discretion, determine whether to waive any such condition. Any determination made by FNF before any of the Pre-Distribution Transactions concerning the satisfaction or waiver of any or all of the conditions set forth in this Section 2.3 shall be conclusive and binding on the Parties.
9
Article III
THE DISTRIBUTION
Section 3.1 ACTIONS PRIOR TO THE DISTRIBUTION . Subject to the satisfaction or waiver of the conditions set forth in Section 3.3 , the actions set forth in this Section 3.1 shall be taken before the Distribution Date.
(a) The Board of Directors of FNF shall establish the Distribution Date and any appropriate procedures in connection with the Distribution. FNF and JAX shall use commercially reasonable efforts to (i) cooperate with each other with respect to the preparation of the Registration Statement and the Information Statement, (ii) cause the Registration Statement to become effective under the Exchange Act and to keep the Registration Statement effective until the Effective Time, and (iii) mail, promptly after effectiveness of the Registration Statement and on or promptly after the Record Date, and in any event before the Distribution Date, to the holders of FNFV Common Stock as of the Record Date, the Information Statement or a notice of the internet availability thereof.
(b) FNF shall enter into a distribution agent agreement with the Distribution Agent (the Distribution Agent Agreement ) providing for, among other things the Distribution to the holders of FNFV Common Stock in accordance with this Article III.
(c) FNF and JAX shall deliver to the Distribution Agent (i) book-entry transfer authorizations for all of the outstanding shares of JAX Common Stock to be distributed in connection with the payment of the Distribution and (ii) all information required to complete the Distribution on the basis set forth herein and under the Distribution Agent Agreement. Following the Distribution Date, upon the request of the Distribution Agent, JAX shall provide to the Distribution Agent all book-entry transfer authorizations of JAX Common Stock that the Distribution Agent shall require to further effect the Distribution.
(d) Each of FNF and JAX shall execute and deliver to the other Party, or cause the appropriate members of its Group to execute and deliver to the other Party, each of the Ancillary Agreements and any other document necessary to effect the transactions contemplated by this Agreement.
(e) FNF will establish the Record Date and give the NYSE the required notice of the Record Date in compliance with Rule 10b-17 under the Exchange Act.
(f) Each Party shall cooperate with the other Party to accomplish the Distribution and shall take any and all actions necessary or desirable to effect the Distribution.
(g) The Parties will take all actions and make all filings as FNF, in consultation with JAX but ultimately in its sole and absolute discretion, determines are necessary or appropriate, to cause the transfer or issuance of all material Consents in order for FNF and JAX to operate their respective Businesses independently of each other in the manner contemplated hereunder and under the Ancillary Agreements. JAX will prepare, file and use commercially reasonable efforts to make effective an application for listing of the JAX Common Stock on the NYSE, subject to official notice of issuance.
(h) FNF shall, in its sole discretion, determine (i) whether to proceed with all or part of the Distribution, (ii) the Distribution Date, (iii) the timing and conditions to the Distribution and (iv) the terms thereof. FNF may, at any time and from time to time before the Effective Time, change the terms of the Distribution, including by delaying or accelerating the timing of the Distribution. FNF shall use good faith efforts to provide notice to JAX of any such change. FNF may select, for itself and for JAX, outside financial advisors, outside counsel, agents and the financial printer employed in connection with the transactions hereunder in its sole and absolute discretion.
10
(i) FNF and JAX shall take all actions necessary so that the JAX Certificate of Incorporation and the JAX Bylaws shall be in effect at or before the Effective Time.
(j) FNF and JAX shall take all such actions as FNF, in consultation with JAX but ultimately in its sole and absolute discretion, determines are necessary or appropriate under applicable federal or state securities or blue sky laws of the United States (and any comparable Laws under any foreign jurisdiction) in connection with the Distribution.
Section 3.2 THE DISTRIBUTION . Subject to the satisfaction or waiver of the conditions set forth in Section 3.3 , the actions set forth in this Section 3.2 shall be taken on the Distribution Date.
(a) FNF shall effect the Distribution by causing all of the issued and outstanding shares of JAX Common Stock beneficially owned by FNF to be distributed to record holders of shares of FNFV Common Stock as of the Record Date, other than with respect to shares of FNFV Common Stock held in the treasury of FNF, by means of a pro rata dividend of such JAX Common Stock to such record holders of shares of FNFV Common Stock, on the terms and subject to the conditions set forth in this Agreement.
(b) Each record holder of FNFV Common Stock on the Record Date (or such holders designated transferee or transferees), other than in respect of shares of FNFV Common Stock held in the treasury of FNF, will be entitled to receive in the Distribution, one (1) share of JAX Common Stock with respect to every [ ] shares of FNFV Common Stock held by such record holder on the Record Date. FNF shall direct the Distribution Agent to distribute on the Distribution Date or as soon as reasonably practicable thereafter the appropriate number of shares of JAX Common Stock to each such record holder or designated transferee(s) of such holder of record.
(c) FNF shall direct the Distribution Agent to determine, as soon as is practicable after the Distribution Date, the number of fractional shares, if any, of JAX Common Stock allocable to each holder of record of FNFV Common Stock entitled to receive JAX Common Stock in the Distribution and to promptly thereafter aggregate all such fractional shares and sell the whole shares obtained thereby, in open market transactions or otherwise at the then-prevailing trading prices, and to cause to be distributed to each such holder, in lieu of any fractional share, such holders ratable share of the proceeds of such sale, after making appropriate deductions of the amounts required to be withheld for federal income tax purposes and after deducting an amount equal to all brokerage charges, commissions and transfer taxes attributed to such sale.
(d) Any JAX Common Stock or cash in lieu of fractional shares with respect to JAX Common Stock that remains unclaimed by any holder of record 180 days after the Distribution Date shall be delivered to JAX at its request. JAX shall hold such JAX Common Stock and/or cash for the account of such holder of record and any such holder of record shall look only to JAX for such JAX Common Stock and/or cash, if any, in lieu of fractional share interests, subject in each case to applicable escheat or other abandoned property Laws.
Section 3.3 CONDITIONS TO DISTRIBUTION . The obligation of FNF to consummate the Distribution is subject to the prior or simultaneous satisfaction, or waiver by FNF, in its sole and absolute discretion, of each of the following conditions:
(a) final approval of the Distribution shall have been given by the Board of Directors of FNF, and the Board of Directors of FNF shall have declared the dividend of JAX Common Stock, each such action in its sole and absolute discretion;
(b) the Registration Statement shall have been filed with, and declared effective by, the SEC, and there shall be no stop-order in effect with respect thereto and the Information Statement or a notice of the internet availability thereof shall have been mailed to FNF stockholders;
11
(c) the actions and filings necessary or appropriate under applicable federal and state securities Laws of the United States (and any comparable Laws under any foreign jurisdictions) in connection with the Distribution (including, if applicable, any actions and filings relating to the Registration Statement) and any other necessary and applicable Consents from any Governmental Authority shall have been taken, obtained and, where applicable, have become effective or been accepted, each as the case may be;
(d) the JAX Common Stock to be delivered in the Distribution shall have been approved for listing on the NYSE, subject to official notice of issuance;
(e) no order, injunction or decree issued by any Governmental Authority or other legal restraint or prohibition preventing the consummation of the Pre-Distribution Transactions or the Distribution or any of the other transactions contemplated by this Agreement or any Ancillary Agreement shall have been threatened or be in effect;
(f) FNF shall have received a tax opinion from KPMG LLP, in form and substance satisfactory to FNF, to the effect that the Distribution will qualify as a tax-free spin-off under Sections [368(a)(1)(D) and] 355 of the Code;
(g) FNF shall have established the Record Date and shall have given the NYSE not less than ten (10) days advance notice of the Record Date in compliance with Rule 10b-17 under the Exchange Act;
(h) the Distribution will not violate or result in a breach of Law or any material agreement;
(i) all material Consents required in connection with the transactions contemplated hereby (that are not referred to in Section 3.3(c) ) shall have been received and be in full force and effect;
(j) each of the Pre-Distribution Transactions shall have been consummated in accordance with this Agreement;
(k) the Ancillary Agreements shall have been duly executed and delivered and such agreements shall be in full force and effect and the parties thereto shall have performed or complied with all of their respective covenants, obligations and agreements contained herein and therein and as required to be performed or complied with before the Effective Time; and
(l) the Board of Directors of FNF shall have not determined (in its sole and absolute discretion) that any event or development shall have occurred or exists, or might occur or exist, that makes it inadvisable to effect the Distribution.
Each of the foregoing conditions is for the sole benefit of FNF and FNF may, in its sole and absolute discretion, determine whether to waive any such condition. Any determination made by FNF, in its sole and absolute discretion, before the Distribution concerning the satisfaction or waiver of any or all of the conditions set forth in this Section 3.3 shall be conclusive and binding on the Parties. Each Party will use good faith efforts to keep the other Party apprised of its efforts with respect to, and the status of, each of the foregoing conditions.
Article IV
SURVIVAL AND INDEMNIFICATION; RELEASE
Section 4.1 SURVIVAL OF AGREEMENTS . All covenants and agreements of the Parties contained in this Agreement shall survive the Effective Time.
12
Section 4.2 INDEMNIFICATION BY JAX . JAX shall indemnify, defend, release and hold harmless FNF, each member of the FNF Group and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the FNF Indemnified Parties ), from and against any and all Losses or Liabilities of the FNF Indemnified Parties relating to, arising out of or resulting from any of the following items regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud, misrepresentation or otherwise (without duplication):
(a) the failure of JAX or any other member of the JAX Group or any other Person to pay, perform or otherwise promptly discharge any JAX Liability or any contract, agreement or arrangement included in the JAX Assets in accordance with their respective terms, whether arising before, on or after the Distribution Date;
(b) any JAX Liability, any JAX Asset or the JAX Business, whether arising before, on or after the Distribution Date;
(c) any breach by JAX or any member of the JAX Group of this Agreement;
(d) except to the extent set forth in Section 4.3(d) , any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, contained in the Registration Statement or the Information Statement or in any registration statement filed by JAX (or related prospectus) in connection with the Distribution, or in any materials or information provided to investors by, or with the approval of, JAX in connection with the marketing of the Distribution; and
(e) the failure by JAX to substitute a member of the JAX Group for any member of the FNF Group as guarantor or primary obligor for any JAX Agreement or JAX Liability according to the terms and conditions of Section 2.2(d)(i) .
Section 4.3 INDEMNIFICATION BY FNF . FNF shall indemnify, defend, release and hold harmless JAX, each member of the JAX Group and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the JAX Indemnified Parties , and, together with FNF Indemnified Parties, the Indemnified Parties ), from and against any and all Losses or Liabilities of the JAX Indemnified Parties relating to, arising out of or resulting from any of the following items regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud, misrepresentation or otherwise (without duplication):
(a) the failure of FNF or any other member of the FNF Group or any other Person to pay, perform or otherwise promptly discharge any FNF Liability or any contract, agreement or arrangement included in the FNF Assets in accordance with their respective terms, whether arising before, on or after the Distribution Date;
(b) any FNF Liability, FNF Asset or the FNF Business, whether arising before, on or after the Distribution Date;
(c) any breach by FNF or any member of the FNF Group of this Agreement;
(d) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with respect to the information contained in the Registration Statement or the Information Statement, in each case, only to the extent provided in writing by FNF and solely concerning the FNF Group; and
(e) the failure by FNF to substitute a member of the FNF Group for any member of the JAX Group as guarantor or primary obligor for any FNF agreement or FNF Liability according to the terms and conditions of Section 2.2(d)(ii).
13
Section 4.4 INSURANCE .
(a) Each of FNF and JAX shall use its respective commercially reasonable efforts to collect any proceeds under its respective available and applicable third party insurance policies to which it or any of its Subsidiaries is entitled before seeking indemnification under this Agreement, where allowed; provided, however, that any such actions by an Indemnified Party will not relieve the Indemnifying Party of any of its obligations under this Agreement, including the Indemnifying Partys obligation to pay directly or reimburse the Indemnified Party for costs and expenses actually incurred by the Indemnified Party.
(b) The amount of any Loss subject to indemnification pursuant to this Agreement will be reduced by any amounts actually recovered (including insurance proceeds or other amounts actually recovered under insurance policies, net of any out-of-pocket costs or expenses incurred in the collection thereof), whether retroactively or prospectively, by the Indemnified Party from any third Person with respect to such Loss. If any Indemnified Party recovers an amount from a third Person in respect of any Loss for which indemnification is provided in this Agreement after the full amount of such indemnifiable Loss has been paid by an Indemnifying Party or after an Indemnifying Party has made a payment of such indemnifiable Loss and the amount received from the third Person exceeds the remaining unpaid balance of such indemnifiable Loss, then the Indemnified Party will promptly remit to the Indemnifying Party the excess (if any) of (i) the sum of the amount previously paid by such Indemnifying Party in respect of such indemnifiable Loss plus the amount received by such Indemnified Party from such third Person in respect of such indemnifiable Loss (after deducting any costs and expenses that have not yet been paid or reimbursed by the Indemnifying Party), minus (ii) the full amount of such indemnifiable Loss. An insurer or other third Person who would otherwise be obligated to pay any Loss shall not be relieved of the responsibility with respect thereto by virtue of the indemnification provisions hereof or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto, it being understood and agreed that no insurer or any third Person shall be entitled to a windfall (i.e., a benefit it would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification provisions hereof.
Section 4.5 PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS .
(a) If an Indemnified Party shall receive notice or otherwise learn of the assertion by any Person who is not a member of the FNF Group or the JAX Group of any claim, or of the commencement by any such Person of any Action, with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnified Party pursuant to Section 4.2 or Section 4.3 , or any other Section of this Agreement or any Ancillary Agreement (other than the Tax Matters Agreement) (collectively, a Third Party Claim ), such Indemnified Party shall give such Indemnifying Party prompt written notice thereof and, in any event, within ten (10) days after such Indemnified Party received notice of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail, including, if known, the amount of the Liability for which indemnification may be available. Notwithstanding the foregoing, the failure of any Indemnified Party or other Person to give notice as provided in this Section 4.5(a) shall not relieve the related Indemnifying Party of its obligations under this Article IV, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice.
(b) An Indemnifying Party may elect (but is not required) to assume the defense of and defend, at such Indemnifying Partys own expense and by such Indemnifying Partys own counsel, any Third Party Claim. Within thirty (30) days after the receipt of notice from an Indemnified Party in accordance with Section 4.5(a) (or sooner, if the nature of such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnified Party of its election whether the Indemnifying Party will assume control of the defense of such Third Party Claim, which election shall specify any reservations or exceptions. If, in such notice, the Indemnifying Party elects to assume the defense of a Third Party Claim,
14
the Indemnified Party shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, but the fees and expenses of such counsel shall be the expense solely of such Indemnified Party.
(c) If, in such notice, an Indemnifying Party elects not to assume responsibility for defending a Third Party Claim, or fails to notify an Indemnified Party of its election as provided in Section 4.5(b) , such Indemnified Party may defend such Third Party Claim at the cost and expense of the Indemnifying Party (subject to the terms and conditions of this Agreement).
(d) The Indemnifying Party shall not have the right to compromise or settle a Third Party Claim the defense of which it shall have assumed pursuant to Section 4.5(b) except with the consent of the Indemnified Party (such consent not to be unreasonably withheld, delayed or conditioned). Any such settlement or compromise made or caused to be made of a Third Party Claim in accordance with this Article IV shall be binding on the Indemnified Party in the same manner as if a final judgment or decree had been entered by a court of competent jurisdiction in the amount of such settlement or compromise. For the avoidance of doubt, the Indemnified Partys failure to consent to any such settlement or compromise shall be deemed unreasonable if such settlement or compromise (1) provides for an unconditional release of the Indemnified Party from Liability with respect to such Third Party Claim and (2) does not require the Indemnified Party to make any payment that is not fully indemnified under this Agreement or to be subject to any non-monetary remedy. If the Indemnified Party unreasonably withholds a consent required by this Section 4.5(d) to the terms of a compromise or settlement of a Third Party Claim proposed to the Indemnified Party by the Indemnifying Party, the Indemnifying Partys obligation to indemnify the Indemnified Party for such Third Party Claim (if applicable) shall not exceed the total amount that had been proposed in such compromise or settlement offer plus the amount of all expenses incurred by the Indemnified Party with respect to such Third Party Claim through the date on which such consent was requested.
(e) In the event of payment by or on behalf of any Indemnifying Party to any Indemnified Party in connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnified Party as to any events or circumstances in respect of which such Indemnified Party may have any right, defense or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other Person. Such Indemnified Party shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.
(f) The provisions of Section 4.2 through Section 4.6 shall not apply to matters that are governed by the Tax Matters Agreement.
Section 4.6 PROCEDURES FOR INDEMNIFICATION OF NON-THIRD PARTY CLAIMS . Any claim with respect to a Liability that does not result from a Third Party Claim shall be asserted by written notice given by the Indemnified Party to the Indemnifying Party. Such Indemnifying Party shall have a period of thirty (30) days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond in writing within such 30-day period, such Indemnifying Party shall be deemed to have agreed to accept responsibility to make payment. If such Indemnifying Party (a) does not respond within such 30-day period or (b) rejects such claim in whole or in part and does not deliver a Dispute Escalation Notice pursuant to Section 10.8 within such 30-day period, then, in either case, such Indemnified Party shall be free to pursue such remedies as may be available to such Party as contemplated by this Agreement.
Section 4.7 SURVIVAL OF INDEMNITIES . The rights and obligations of each of FNF and JAX and their respective Indemnified Parties under this Article IV shall survive the sale or other transfer by any Party of any of its Assets or Businesses or the assignment by it of any Liabilities.
Section 4.8 REMEDIES CUMULATIVE . The remedies provided in this Article IV shall be cumulative and shall not preclude assertion by any Indemnified Party of any other rights or the seeking of any and all other remedies against any Indemnifying Party; provided, that the procedures set forth in this Article IV shall be the exclusive procedures governing any indemnity action brought under this Agreement.
15
Section 4.9 ANCILLARY AGREEMENTS . Notwithstanding anything in this Agreement to the contrary, to the extent any Ancillary Agreement contains any indemnification obligation relating to any FNF Liability, FNF Asset, JAX Liability or JAX Asset contributed, assumed, retained, transferred, delivered or conveyed pursuant to such Ancillary Agreement, the indemnification obligations contained herein shall not apply to such FNF Liability, FNF Asset, JAX Liability or JAX Asset and instead the indemnification obligations set forth in such Ancillary Agreement shall govern with regard to such FNF Asset, FNF Liability, JAX Asset or JAX Liability.
Section 4.10 MUTUAL RELEASE .
(a) Except as provided in Section 4.10(c) , effective as of the Effective Time, FNF does hereby, on behalf of itself and each other member of the FNF Group, their respective Affiliates (other than any member of the JAX Group), successors and assigns, and all Persons who at any time before the Effective Time have been stockholders (other than any member of the JAX Group), directors, officers, agents or employees of any member of the FNF Group (in each case, in their respective capacities as such) (the FNF Releasors ), unconditionally and irrevocably release and discharge each of JAX, the other members of the JAX Group, their respective Affiliates (other than any member of the FNF Group), successors and assigns, and all Persons who at any time before the Effective Time have been stockholders, directors, officers, agents or employees of any member of the JAX Group (in each case, in their respective capacities as such), and their respective heirs, executors, trustees, administrators, successors and assigns (the JAX Parties ), from any and all Liabilities existing or arising in connection with the implementation of the Separation (the FNF Claims ); and the FNF Releasors hereby, unconditionally and irrevocably agree not to initiate proceedings with respect to, or institute, assert or threaten to assert, any FNF Claim.
(b) Except as provided in Section 4.10(c) , effective as of the Effective Time, JAX does hereby, on behalf of itself and each other member of the JAX Group, their respective Affiliates (other than any member of the FNF Group), successors and assigns, and all Persons who at any time before the Effective Time have been stockholders (other than any member of the FNF Group), directors, officers, agents or employees of any member of the JAX Group (in each case, in their respective capacities as such) (the JAX Releasors ), unconditionally and irrevocably release and discharge each of FNF, the other members of the FNF Group, their respective Affiliates (other than any member of the JAX Group), successors and assigns, and all Persons who at any time before the Effective Time have been stockholders (other than any member of the JAX Group), directors, officers, agents or employees of any member of the FNF Group (in each case, in their respective capacities as such), and their respective heirs, executors, trustees, administrators, successors and assigns (the FNF Parties ), from any and all Liabilities existing or arising in connection with the implementation of the Separation (the JAX Claims ); and the JAX Releasors hereby unequivocally, unconditionally and irrevocably agree not to initiate proceedings with respect to, or institute, assert or threaten to assert, any JAX Claim.
(c) Nothing contained in Section 4.10(a ) or Section 4.10(b) shall impair any right of any Person to enforce this Agreement or any Ancillary Agreement, nor shall anything contained in this Agreement or any Ancillary Agreement be interpreted as terminating as of the Effective Time any rights under this Agreement or any Ancillary Agreement. For purposes of clarification, nothing contained in Section 4.10(a) or Section 4.10(b) shall release any Person from:
(i) any Liability provided in or resulting from this Agreement or any of the Ancillary Agreements (including for greater certainty, any Liability resulting or flowing from any breaches of such agreements that arose before the Effective Time);
(ii) with respect to FNF, any FNF Liability and, with respect to JAX, any JAX Liability;
16
(iii) any Liability that the Parties may have under Article IV with respect to Third Party Claims;
(iv) any Liability for unpaid Inter-Group Indebtedness (if any); or
(v) any Liability the release of which would result in the release of any Person other than a Person released pursuant to this Section 4.10 .
In addition, nothing contained in this Section 4.10 shall release FNF from honoring its existing obligations to indemnify any director, officer or employee of JAX who was a director, officer or employee of FNF or any other member of the FNF Group on or before the Effective Time, to the extent that such director, officer or employee becomes a named defendant in any litigation involving FNF or any other member of the FNF Group and was entitled to such indemnification pursuant to the then existing obligations of a member of the FNF Group.
(d) FNF shall not make, and shall not permit any other member of the FNF Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against JAX or any other member of the JAX Group or any other Person released pursuant to Section 4.10(a) , with respect to any Liabilities released pursuant to Section 4.10(a) . JAX shall not make, and shall not permit any other member of the JAX Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against FNF or any other member of the FNF Group or any other Person released pursuant to Section 4.10(b) , with respect to any Liabilities released pursuant to Section 4.10(b) .
Article V
ANCILLARY AGREEMENTS
Section 5.1 TAX MATTERS AGREEMENT . All matters relating to taxes shall be governed exclusively by the Tax Matters Agreement, except as may be expressly stated herein or therein. In the event of any inconsistency with respect to such matters between the Tax Matters Agreement and this Agreement or any other Ancillary Agreement, the Tax Matters Agreement shall govern to the extent of the inconsistency.
Section 5.2 MANAGEMENT CONSULTING AGREEMENT . All matters relating to the provision of support and other services by the Management Company to the JAX Group after the Effective Time, covered by the Management Agreement, shall be governed exclusively by the Management Agreement, except as may be expressly stated herein or therein. In the event of any inconsistency with respect to such matters between the Management Agreement and this Agreement or any other Ancillary Agreement, the Management Agreement shall govern to the extent of the inconsistency.
Section 5.3 RESTRUCTURING DOCUMENTS . All matters relating to the Restructuring shall be governed exclusively by the applicable Restructuring Documents, except as may be expressly stated herein or therein. In the event of any inconsistency with respect to such matters between the applicable Restructuring Documents and this Agreement or any other Ancillary Agreement, the applicable Restructuring Document shall govern to the extent of the inconsistency.
Article VI
CERTAIN ADDITIONAL COVENANTS
Section 6.1 CONSENTS FOR BUSINESS . After the Effective Time, each Party shall cause the appropriate members of its respective Group to prepare and file with the appropriate Governmental Authorities applications for the transfer or issuance, as each of the Parties determines is necessary or advisable, to its Group of all material Consents required for the members of its Group to operate its Business. The members of the JAX Group and the members of the FNF Group shall cooperate and use all reasonable efforts to secure the transfer or issuance of such Consents.
17
Section 6.2 ADDITIONAL CONSENTS . In addition to the actions described in Section 6.1 , the members of the FNF Group and the members of the JAX Group shall cooperate to make all other filings and to give notice to and obtain any Consent required or advisable to consummate the transactions that are contemplated to occur from and after the Effective Time by this Agreement and the Ancillary Agreements.
Section 6.3 FURTHER ASSURANCES .
(a) Each of the Parties shall use its commercially reasonable efforts, on and after the Distribution Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.
(b) Without limiting the foregoing, on and after the Distribution Date, each Party shall cooperate with the other Party, and without any further consideration, but at the expense of the requesting Party, cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and make all filings with, and to obtain all Consents, under any permit, license, agreement, indenture or other instrument, and take all such other actions as either Party may request to be taken by any other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and, to the extent necessary, (i) the transfer of any JAX Asset from any member of the FNF Group to any member of the JAX Group and the assignment and assumption of any JAX Liability by any member of the JAX Group and (ii) the transfer of any FNF Asset from any member of the JAX Group to any member of the FNF Group and the assignment and assumption of any FNF Liability by any member of the FNF Group, and the other transactions contemplated hereby and thereby; provided that neither Party shall be obligated to make any payment, incur any obligation or grant any concession, other than the payment of ordinary and customary fees to Governmental Authorities.
(c) FNF and JAX, in their respective capacities as direct and indirect stockholders of their respective Subsidiaries, shall each properly ratify or cause to be taken any actions that are reasonably necessary or desirable to be taken by FNF and JAX, or any of their respective Subsidiaries, as the case may be, to effectuate the transactions contemplated by this Agreement and any Ancillary Agreement.
(d) Each of the Parties shall, and shall cause each of the members of their respective Groups, at the request of the other, to use its commercially reasonable efforts to obtain, or cause to be obtained, any Consent, substitution or amendment required to novate or assign all obligations under agreements, leases, licenses and other obligations or Liabilities of any nature whatsoever that constitute JAX Liabilities or FNF Liabilities, as the case may be, or to obtain in writing the unconditional release of all parties to such arrangements other than any member of either the JAX Group or the FNF Group, as the case may be, so that, in any such case, such Group will be solely responsible for all such Liabilities.
(e) In the event that at any time and from time to time after the Effective Time any member of the FNF Group shall receive or otherwise possess any JAX Asset, FNF shall or shall cause such member of the FNF Group to promptly transfer such JAX Asset to JAX or its Affiliate or designee.
(f) In the event that at any time and from time to time after the Effective Time any member of the JAX Group shall receive or otherwise possess any FNF Asset, JAX shall or shall cause such member of the JAX Group to promptly transfer such FNF Asset to FNF or its Affiliate or designee.
18
Section 6.4 FUTURE ACTIVITIES . Following the Effective Time and except as set forth in any Ancillary Agreement, no member of either Group shall have any duty to refrain from (a) engaging in the same or similar activities or lines of business as any member of the other Group, (b) conducting its business with any potential or actual supplier or customer of any member of the other Group or (c) engaging in, or refraining from, any other activities whatsoever relating to any of the potential or actual suppliers or customers of any member of the Group. In furtherance and not in limitation of the foregoing, JAX hereby acknowledges and agrees that (i) the FNF Group, through certain of its Subsidiaries, is currently engaged in the restaurant business, which is or may be directly competitive with the business of the JAX Group, and (ii) the FNF Group shall continue to be permitted to engage in such business following the Effective Time.
Section 6.5 INSURANCE MATTERS .
(a) Except as expressly provided herein, JAX acknowledges and agrees, on its own behalf and on behalf of each other member of the JAX Group, that, from and after the Effective Time, neither JAX nor any member of the JAX Group shall have any rights to or under any of FNFs or its Subsidiaries insurance policies, other than any insurance policies acquired before the Effective Time directly by and in the name of a member of the JAX Group or as expressly provided in this Section 6.5 ; provided, however, that JAX shall be entitled to any loss recoveries paid to any member of the FNF Group subsequent to the Effective Time in respect of any insurance claims to the extent related to the JAX Business that were open before the Effective Time less the amount of (i) any liabilities (other than FNF Liabilities) that FNF or its Subsidiaries (including, for the avoidance of doubt, any member of the JAX Group) incurred and paid in connection therewith before the Effective Time and (ii) any liabilities incurred by any member of the FNF Group in connection with obtaining such insurance recoveries.
(b) Notwithstanding Section 6.5(a) , from and after the Effective Time, with respect to losses, damages, wrongful acts or liability incurred before the Effective Time, JAX may access FNFs insurance policies as follows:
(i) to file claims against FNFs occurrence policies in effect at or before the Effective Time for losses based on covered injuries occurring at or before the Effective Time; and
(ii) to file claims against FNFs claims made policies in force at the time the claim is made if the act giving rise to the claim occurred before the Effective Time;
provided, however, that, in the case of each of clause (i) and (ii), such access to, and the right to make claims under such insurance policies, shall be subject to the terms and conditions of the applicable insurance policies, including any limits on coverage or scope, any deductible and other fees and expenses, and shall be subject to:
(A) For so long as JAX may access FNFs policies, JAX shall report as promptly as practicable claims under all accessed FNF insurance policies directly to the applicable insurance company in accordance with FNFs claim reporting procedures in effect immediately before the Effective Time and provide copies of such reported claims to FNFs Treasurer and Corporate Secretary;
(B) JAX shall indemnify, hold harmless and reimburse FNF and its Subsidiaries for any deductibles and self-insured retention incurred by FNF or its Subsidiaries to the extent resulting from any access to, or any claims made by JAX or any of its Subsidiaries under, any insurance policies provided pursuant to Section 6.5(b)(i) and Section 6.5(b)(ii) including any indemnity payments, settlements, judgments, legal fees and allocated claims expenses and claim handling fees, whether such claims are made by JAX, its employees or third Persons;
19
(C) JAX shall exclusively bear (and FNF shall have no obligation to repay or reimburse JAX or its Subsidiaries for) and shall be liable for all uninsured, uncovered, unavailable or uncollectible amounts of all such claims made by JAX or any of its Subsidiaries under the policies as provided for in this Section 6.5(b) ; and
(D) JAX shall be responsible for, and shall directly pay the applicable third Person, all costs and expenses incurred in connection with the filing and prosecution of any claim and the collection of any insurance proceeds related thereto.
(c) Any payments, costs and adjustments required pursuant to Section 6.5(b) and which are incurred and/or paid by FNF shall be billed by FNF to JAX on a monthly basis and payable within 30 days from receipt of invoice. If payment is not made within 60 days of invoice, the outstanding amount will accrue interest from and including the 60th day following the date of the invoice to (but excluding) the date of payment at a rate per annum equal to 10%. If FNF incurs costs to enforce JAXs obligations herein, JAX agrees to indemnify FNF for such enforcement costs, including attorneys fees.
(d) Except as set forth in the proviso to Section 6.5(a) , JAX acknowledges and agrees on its own behalf, and on behalf of each other member of the JAX Group, that neither JAX nor any member of the JAX Group shall have any right or claim against FNF or any of its Subsidiaries for reimbursement, payment or any other obligation arising from any insurance policy covering JAX or any member of the JAX Group, and hereby irrevocably releases, as of the Effective Time, FNF and its Subsidiaries from all of the duties, obligations, responsibilities and liabilities, known or unknown, reported or not reported, imposed upon FNF or any of its Subsidiaries to the extent resulting from, relating to or arising out of any such insurance policy, without recourse to FNF or any of its Subsidiaries.
(e) FNF shall retain the exclusive right to control its insurance policies and programs, including the right to exhaust, settle, release, commute, buy-back or otherwise resolve disputes with respect to any of its insurance policies and programs and to amend, modify or waive any rights under any such insurance policies and programs, notwithstanding whether any such policies or programs apply to any JAX Liabilities and/or claims JAX has made or could make in the future, and no member of the JAX Group shall, without the prior written consent of FNF, erode, exhaust, settle, release, commute, buy-back or otherwise resolve disputes with FNFs insurers with respect to any of FNFs insurance policies and programs, or amend, modify or waive any rights under any such insurance policies and programs. JAX shall cooperate with FNF and share such information as is reasonably necessary to permit FNF to manage and conduct its insurance matters as it deems appropriate.
(f) At the Effective Time, JAX shall have in effect all insurance programs required to comply with law or JAXs contractual obligations and such other insurance policies as reasonably necessary or customary for companies operating a business similar to JAXs.
(g) FNF and its Subsidiaries shall have no obligation to secure extended reporting for any claims under any of FNFs or its Subsidiaries claims-made or occurrence-reported liability policies for any acts or omissions by any member of the JAX Group incurred before the Effective Time.
(h) This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the FNF Group in respect of any of the FNF insurance policies and programs or any other contract or policy of insurance.
20
Article VII
ACCESS TO INFORMATION
Section 7.1 AGREEMENT FOR EXCHANGE OF INFORMATION .
(a) Each of FNF and JAX, on behalf of its respective Group, agrees to provide, or cause to be provided, to the other Party and its auditors, at any time after the Distribution Date, as soon as reasonably practicable after written request therefor from such other Party, any Information in the possession or under the control of such respective Group (including access to such Groups accountants, personnel and facilities) that the requesting Party reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting Party (including under applicable securities Laws) by a Governmental Authority having jurisdiction over the requesting Party (including pursuant to Section 7.1(d) ), (ii) for use in any other judicial, regulatory, administrative or other proceeding or to satisfy audit, accounting, claims, regulatory, litigation or other similar requirements, or (iii) to comply with its obligations under this Agreement or any Ancillary Agreement (other than with respect to matters governed by the Tax Matters Agreement, which shall remain subject solely to the terms and conditions set forth therein); provided, however, that in the event that any Party reasonably determines that any such provision of Information could be commercially detrimental to such Party or any member of its Group, violate any Law or agreement to which such Party or member of its Group is a party, or waive any attorney-client privilege applicable to such Party or member of its Group, the Parties shall take reasonable measures to permit the compliance with the obligations pursuant to this Section 7.1(a) in a manner that avoids any such harm or consequence. FNF and JAX intend that any transfer of Information that would otherwise be within the attorney-client privilege shall not operate as a waiver of any potentially applicable privilege.
(b) Following the Distribution Date, each Party shall make its employees available during normal business hours and on reasonable prior notice to provide an explanation of any Information provided hereunder.
(c) Until the end of the first full FNF fiscal year occurring after the Distribution Date (and for a reasonable period of time afterwards as required for each Party to prepare consolidated financial statements or complete a financial statement audit for the fiscal year during which the Distribution Date occurs), each Party shall use its commercially reasonable efforts, consistent with past practice, to enable the other Party to meet its timetable for dissemination of its financial statements and enable such other Partys auditors to timely complete their annual audit and quarterly financial statements.
(d) In order to enable the principal executive officer or officers, principal financial officer or officers and controller or controllers of the other Party to make the certifications required of them by Rule 13a-14 under the Exchange Act, within thirty (30) days following the end of any fiscal quarter during which JAX was a Subsidiary of any member of the FNF Group, each Party shall cause its officers or employees to provide the other Party with the certification statements of such officers and employees with respect to such quarter or portion thereof, in substantially the same form and manner as such officers or employees provided such certification statements before the Distribution Date, or as otherwise agreed upon between the Parties. Such certification statements shall also reflect any changes in certification statements necessitated by the Separation, Distribution and any other transactions related thereto.
Section 7.2 OWNERSHIP OF INFORMATION . Any Information owned by one Group that is provided to a requesting Party pursuant to Section 7.1 shall be deemed to remain the property of the providing Party. Unless specifically set forth herein or in any Ancillary Agreement, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information.
Section 7.3 COMPENSATION FOR PROVIDING INFORMATION . The Party requesting such Information agrees to reimburse the other Party for the reasonable out-of-pocket costs, if any, of creating, gathering and copying such Information or for providing explanations of Information provided, to the extent that such costs are incurred for the benefit of the requesting Party by or on behalf of such other Partys Group. Except as may be specifically provided elsewhere in this Agreement or in any other Ancillary Agreement, such costs shall be computed in accordance with the providing Partys reasonable standard methodology and procedures.
21
Section 7.4 RECORD RETENTION . Except as otherwise required or agreed in writing, or as otherwise provided in the Tax Matters Agreement, each Party shall use its good faith efforts to retain, in accordance with such Partys record retention practices as in effect from time to time, all significant Information in such Partys possession or under its control relating to the Business, Assets or Liabilities of the other Party, and, for a period of two (2) years following the Distribution Date, before destroying or disposing of any such Information, (a) the Party proposing to dispose of or destroy any such Information shall use its good faith efforts to provide reasonable prior written notice to the other Party, specifying the Information proposed to be destroyed or disposed of and (b) if, before the scheduled date for such destruction or disposal, the other Party requests in writing that any of the Information proposed to be destroyed or disposed of be delivered to such other Party, the Party proposing to dispose of or destroy such Information shall promptly arrange for the delivery of the requested Information to a location specified by, and at the expense of, the requesting Party; provided, however, that in the event that any Party reasonably determines that any such provision of Information could be commercially detrimental to such Party or any member of its Group, violate any Law or agreement to which such Party or member of its Group is a party, or waive any attorney-client privilege applicable to such Party or member of its Group, the Parties shall take reasonable measures to permit the compliance with the obligations pursuant to this Section 7.4 in a manner that avoids any such harm or consequence. FNF and JAX intend that any transfer of Information that would otherwise be within the attorney-client privilege shall not operate as a waiver of any potentially applicable privilege.
Section 7.5 LIMITATION OF LIABILITY . Notwithstanding Article IV, no Party shall have any Liability to the other Party in the event that any Information exchanged or provided pursuant to this Agreement (and not otherwise constituting part of this Agreement, its Exhibits or Schedules), or otherwise in connection with the Separation and the other transactions contemplated hereby, is found to be inaccurate, whether such Information is exchanged or provided before or after the Effective Time, in the absence of willful misconduct by the providing Party. No Party shall have any Liability to the other Party if any Information is disposed of or destroyed after using good faith efforts to comply with its obligations under Section 7.4 with respect to the retention of such Information.
Section 7.6 OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION . The rights and obligations granted under this Article VII are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in any Ancillary Agreement. The provisions of Section 7.1 through Section 7.7 shall not apply to matters governed by the Tax Matters Agreement.
Section 7.7 PRODUCTION OF WITNESSES; RECORDS; COOPERATION .
(a) Except in the case of an Action by one Party against another Party (which shall be governed by such discovery rules as may be applicable thereto), each Party shall use its commercially reasonable efforts to make available to the other Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such Person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action in which the requesting Party may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. The requesting Party shall bear all reasonable out-of-pocket costs and expenses in connection therewith.
(b) If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third Party Claim, the Indemnified Party shall use its commercially reasonable efforts to make available to the Indemnifying Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such Person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise, and shall otherwise cooperate in such defense, settlement or compromise.
22
(c) Without limiting the foregoing, the Parties shall cooperate and consult, and shall cause each member of its respective Group to cooperate and consult, to the extent reasonably necessary with respect to any Actions and any Related Claims with respect thereto.
(d) Without limiting any provision of this Section 7.7 , each of the Parties agrees to cooperate, and to cause each member of its respective Group to cooperate, at the other Partys sole cost and expense, with the other Party and each member of its respective Group in the defense of any claim that the Business of the other Party or its Group members infringes upon or misappropriates third Person Intellectual Property and shall not acknowledge or concede, or permit any member of its respective Group to acknowledge or concede (i) that the Business of the other Party or its Group members infringes upon such third Person Intellectual Property (ii) or that such third Person Intellectual Property is valid or enforceable, in a manner that would hamper or undermine the defense of such infringement or misappropriation claim.
(e) In connection with any matter contemplated by this Section 7.7 , the Parties will enter into a mutually acceptable joint defense agreement so as to maintain to the extent practicable any applicable attorney-client privilege or work product immunity of any member of any Group.
(f) With respect to any Third Party Claim that implicates both Parties in any material respect due to the allocation of Liabilities or otherwise, or the responsibilities for management of defense and related indemnities pursuant to this Agreement or any of the Ancillary Agreements, the Parties agree to use commercially reasonable efforts to cooperate fully and maintain a joint defense (in a manner that will preserve for all Parties any privilege with respect thereto). The Party that is not responsible for managing the defense of any such Third Party Claim shall, upon reasonable request, be consulted with respect to significant matters relating thereto and may, if necessary or helpful, retain counsel to assist in the defense of such claims. Each of FNF and JAX agrees that at all times from and after the Effective Time, if an Action is commenced by a third party naming two (2) or more Parties (or any member of such Parties respective Groups) as defendants and with respect to which one or more named Parties (or any member of such Partys respective Group) is a nominal defendant and/or such Action is otherwise not a Liability allocated to such named Party under this Agreement or any Ancillary Agreement, then the other Party or Parties shall use commercially reasonable efforts to cause such nominal defendant to be removed from such Action, as soon as reasonably practicable.
Section 7.8 CONFIDENTIALITY .
(a) General . Each Party acknowledges (i) that such Party has in its possession and, in connection with this Agreement and the Ancillary Agreements such Party will receive, Information of the other Party that is not available to the general public, and (ii) that such Information may constitute, contain or include material non-public Information of the other Party. Subject to Section 7.8(c) , as of the Distribution Date, FNF, on behalf of itself and each of its Affiliates, and JAX, on behalf of itself and each of its Affiliates, agrees to hold, and to cause its and their respective directors, officers, employees, agents, third party contractors, vendors, accountants, counsel and other advisors and representatives to hold, in strict confidence, with at least the same degree of care that such Party applies to its own confidential and proprietary Information pursuant to its applicable policies and procedures in effect as of the Distribution Date, all Information (including Information received and/or obtained pursuant to Section 7.1 ) concerning the other Party (or its Business) and such other Partys Affiliates (or their respective Business) that is either in its possession (including Information in its possession before the Distribution Date) or furnished by the other Party or the other Partys Affiliates or their respective directors, officers, employees, agents, third party contractors, vendors, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement and the Ancillary Agreements, and will not use such Information other than for such purposes as may be expressly permitted hereunder, except, in each case, to the extent that such Information: (i) is or becomes available to the general public, other than as a result of a disclosure by such Party or its Affiliates or any of their respective directors, officers, employees, agents, third party
23
contractors, vendors, accountants, counsel and other advisors and representatives in breach of this Agreement; (ii) was available to such Party or its Affiliates or becomes available to such Party or its Affiliates, on a non-confidential basis from a source other than the other Party hereto, provided , that, the source of such Information was not bound by a confidentiality obligation with respect to such Information, or otherwise prohibited from transmitting the Information to such Party or its Affiliates by a contractual, legal or fiduciary obligation; or (iii) is independently generated by such Party without use of or reference to any proprietary or confidential Information of the other Party.
(b) No Disclosure, Compliance with Law, Return or Destruction . Following the Effective Time, each Party agrees not to release or disclose, or permit to be released or disclosed, any Information with respect to the other Party to any other Person, except its directors, officers, employees, agents, third party contractors, vendors, accountants, counsel, lenders, investors and other advisors and representatives who need to know such Information in connection with this Agreement or the Ancillary Agreements or for valid business reasons relating thereto, and except in compliance with Section 7.8(c) . Each Party shall advise its directors, officers, employees, agents, third party contractors, vendors, accountants, counsel, lenders, investors and other advisors and representatives who have been provided with such Information of such Partys confidentiality obligations hereunder and that such Information may constitute, contain or include material non-public Information of the other Party. Following the Effective Time, each Party shall, and shall cause, its directors, officers, employees, agents, third party contractors, vendors, accountants, counsel, lenders, investors and other advisors and representatives who have been provided with such Information to, use such Information only in accordance with (i) the terms of this Agreement or the Ancillary Agreements and (ii) applicable Law (including federal and state securities Laws). Following the Effective Time, each Party shall promptly, after receiving a written request of the other Party, return to the other Party all such Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other Party that it has destroyed such Information (and such copies thereof and such notes, extracts or summaries based thereon), as directed by the other Party; provided , however , that in no event shall either Party be required to destroy any hardware that includes Information if such Information is only accessible to highly skilled computer experts and cannot otherwise be deleted or destroyed without undue cost or effort (provided that such Information will remain subject to the confidentiality protection provisions herein).
(c) Protective Arrangements . Notwithstanding anything herein to the contrary, in the event that, following the Effective Time, either Party or any of its directors, officers, employees, agents, third party contractors, vendors, accountants, counsel, lenders, investors or other advisors or representatives either determines on the advice of its counsel that it is required to disclose any Information pursuant to applicable Law or the rules or regulations of a Governmental Authority or receives any demand under lawful process or from any Governmental Authority to disclose or provide Information of the other Party that is subject to the confidentiality provisions hereof, such Party shall, if possible, notify the other Party before disclosing or providing such Information and shall cooperate at the expense of the other Party in seeking any reasonable protective arrangements requested by such other Party. In the event that a protective arrangement is not obtained, the Person that received such request (i) may thereafter disclose or provide such Information to the extent required by such Law (as so advised by counsel) or by lawful process or such Governmental Authority, without liability therefor and (ii) shall exercise its commercially reasonable efforts to have confidential treatment accorded any such Information so furnished.
Section 7.9 PRIVILEGED INFORMATION . In furtherance of the rights and obligations of the Parties set forth in this Article VII:
(a) Each of JAX (on behalf of itself and the other members of the JAX Group) and FNF (on behalf of itself and the other members of the FNF Group) acknowledges that: (i) each member of the JAX Group and the FNF Group has or may obtain Information that is or may be protected from disclosure pursuant to the attorney-client privilege, the work product doctrine, the common interest and joint defense doctrines or other applicable privileges ( Privileged Information ); (ii) actual, threatened or future Actions have been or may be asserted by or against, or otherwise affect, some or all members of the JAX Group or the FNF Group; (iii) members of the JAX Group and the FNF Group have or may in the
24
future have a common legal interest in such Actions, in the Privileged Information and in the preservation of the protected status of the Privileged Information; and (iv) each of JAX and FNF (on behalf of itself and the other members of its Group) intends that the transactions contemplated by this Agreement and the Ancillary Agreements and any transfer of Privileged Information in connection herewith or therewith shall not operate as a waiver of any applicable privilege or protection afforded Privileged Information.
(b) Each of JAX and FNF agrees, on behalf of itself and each member of the Group of which it is a member, not to intentionally disclose or otherwise intentionally waive any privilege or protection attaching to any Privileged Information relating to a member of the other Group, without consulting with the other.
Article VIII
NO REPRESENTATIONS OR WARRANTIES
Section 8.1 NO REPRESENTATIONS OR WARRANTIES . EACH PARTY, ON BEHALF OF ITSELF AND ALL MEMBERS OF ITS GROUP, UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANY OTHER ANCILLARY AGREEMENT, (A) NO MEMBER OF THE FNF GROUP, THE JAX GROUP OR ANY OTHER PERSON IS, IN THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR IN ANY OTHER AGREEMENT OR DOCUMENT, MAKING ANY REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, WRITTEN OR ORAL, TO ANY PARTY OR ANY MEMBER OF ANY GROUP IN ANY WAY WITH RESPECT TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THE BUSINESS, ASSETS, CONDITION OR PROSPECTS (FINANCIAL OR OTHERWISE) OF, OR ANY OTHER MATTER INVOLVING, ANY FNF ASSETS, ANY FNF LIABILITIES, THE FNF BUSINESS, ANY JAX ASSETS, ANY JAX LIABILITIES OR THE JAX BUSINESS, (B) EACH PARTY AND EACH MEMBER OF EACH GROUP SHALL TAKE ALL OF THE ASSETS, THE BUSINESS AND LIABILITIES TRANSFERRED TO OR ASSUMED BY IT PURSUANT TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT ON AN AS IS, WHERE IS BASIS, AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A SPECIFIC PURPOSE OR OTHERWISE ARE HEREBY EXPRESSLY DISCLAIMED, AND (C) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY APPLICABLE ANCILLARY AGREEMENT, NONE OF FNF, JAX OR ANY MEMBERS OF THE FNF GROUP OR JAX GROUP OR ANY OTHER PERSON MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO ANY OF THE PRE-DISTRIBUTION TRANSACTIONS OR THE DISTRIBUTION OR THE ENTERING INTO OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY. EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, EACH PARTY AND EACH MEMBER OF EACH GROUP SHALL BEAR THE ECONOMIC AND LEGAL RISK THAT ANY CONVEYANCES OF ASSETS SHALL PROVE TO BE INSUFFICIENT OR THAT THE TITLE OF ANY MEMBER OF ANY GROUP TO ANY ASSETS SHALL BE OTHER THAN GOOD AND MARKETABLE AND FREE FROM ENCUMBRANCES.
Article IX
TERMINATION
Section 9.1 TERMINATION . This Agreement may be terminated by FNF in its sole discretion at any time before the consummation of the Distribution.
Section 9.2 EFFECT OF TERMINATION . In the event of any termination of this Agreement before consummation of the Distribution, neither Party (nor any of its directors or officers) shall have any Liability or further obligation to the other Party; provided , however , that in the event this Agreement is terminated after the consummation of any Pre-Distribution Transaction but before the consummation of the Distribution, JAX shall cooperate in taking any and all such actions requested in good faith by FNF, to unwind such Pre-Distribution Transaction.
25
Article X
MISCELLANEOUS
Section 10.1 COMPLETE AGREEMENT; REPRESENTATIONS .
(a) This Agreement, together with the Exhibits and Schedules hereto and the other Ancillary Agreements, constitutes the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter.
(b) FNF represents on behalf of itself and each other member of the FNF Group and JAX represents on behalf of itself and each other member of the JAX Group as follows:
(i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary to execute, deliver and perform each of this Agreement and each Ancillary Agreement to which it is a party and to consummate the transactions contemplated by such agreements; and
(ii) this Agreement has been duly executed and delivered by such Person (if such Person is a Party) and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof (assuming the due execution and delivery thereof by the other Party), and each of the Ancillary Agreements to which it is or will be a party is or will be duly executed and delivered by it and will constitute a valid and binding agreement of it enforceable in accordance with the terms thereof (assuming the due execution and delivery thereof by the other party or parties to such Ancillary Agreements), except as such enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other Laws relating to creditors rights generally and by general equitable principles.
Section 10.2 COSTS AND EXPENSES . Except as expressly provided in this Agreement or any Ancillary Agreement, and except with respect to the Transaction Expenses (defined below) set forth on Schedule 10.2 to be borne by JAX, the FNF Group shall bear all costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby (the Transaction Expenses ) to the extent such costs and expenses are incurred on or before the Distribution Date. Except as expressly provided in this Agreement, any Ancillary Agreement or Schedule 10.2 , each Party shall bear its respective Transaction Expenses to the extent incurred after the Distribution Date.
Section 10.3 GOVERNING LAW . This Agreement and any dispute arising out of, in connection with or relating to this Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware, without giving effect to the conflicts of laws principles thereof.
Section 10.4 NOTICES . All notices, requests, claims, demands and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the Parties at the following addresses or facsimile numbers:
If to FNF or any member of the FNF Group, to:
Fidelity National Financial, Inc.
601 Riverside Avenue
Jacksonville, Florida 32204
Attn: General Counsel
26
If to JAX or any member of the JAX Group, to:
J. Alexanders Holdings, Inc.
3401 West End Avenue, Suite 260
Nashville, Tennessee 37203
Attn: General Counsel
All such notices, requests and other communications will (i) if delivered personally to the address as provided in this section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this section, be deemed given upon receipt and (iii) if delivered by mail in the manner described above to the address as provided in this section, be deemed given upon receipt. Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party.
Section 10.5 AMENDMENT, MODIFICATION OR WAIVER .
(a) Prior to the Effective Time, this Agreement may be amended, modified, waived, supplemented or superseded, in whole or in part, by FNF in its sole discretion by execution of a written amendment delivered to JAX. Subsequent to the Effective Time, this Agreement may be amended, modified, supplemented or superseded only by an instrument signed by duly authorized signatories of both Parties.
(b) Following the Effective Time, any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not alternative.
Section 10.6 NO ASSIGNMENT; BINDING EFFECT; NO THIRD PARTY BENEFICIARIES .
(a) Neither this Agreement nor any right, interest or obligation hereunder may be assigned by either Party hereto without the prior written consent of the other Party hereto and any attempt to do so will be void, except that following the Effective Time each Party hereto may assign any or all of its rights, interests and obligations hereunder to an Affiliate; provided that any such Affiliate agrees in writing to be bound by all of the terms, conditions and provisions contained herein; provided, further, that any such assignment shall not relieve the assigning party of its obligations or liabilities hereunder. Notwithstanding the foregoing, either Party may assign this Agreement without consent in connection with (a) a merger transaction in which such Party is not the surviving entity and the surviving entity acquires or assumes all or substantially all of such Partys assets, or (b) the sale of all or substantially all of such Partys assets; provided, however, that the assignee expressly assumes in writing all of the obligations of the assigning Party under this Agreement, and the assigning Party provides written notice and evidence of such assignment and assumption to the non-assigning Party. Subject to the foregoing, this Agreement is binding upon, inures to the benefit of and is enforceable by the Parties hereto and their respective successors and permitted assigns.
(b) Except for the provisions of Article IV relating to indemnification, the terms and provisions of this Agreement are intended solely for the benefit of each Party hereto and their respective Affiliates, successors or permitted assigns, and it is not the intention of the Parties to confer third party beneficiary rights upon any other Person.
Section 10.7 COUNTERPARTS . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
27
Section 10.8 DISPUTE RESOLUTION . In the event that any dispute arises between the Parties that cannot be resolved, either Party shall have the right to refer the dispute for resolution to the chief financial officers of the Parties by delivering to the other Party a written notice of such referral (a Dispute Escalation Notice ). Following receipt of a Dispute Escalation Notice, the chief financial officers of the Parties shall negotiate in good faith to resolve such dispute. In the event that the chief financial officers of the Parties are unable to resolve such dispute within fifteen (15) business days after receipt of the Dispute Escalation Notice, either Party shall have the right to refer the dispute to the chief executive officers of the Parties, who shall negotiate in good faith to resolve such dispute. In the event that the chief executive officers of the Parties are unable to resolve such dispute within thirty (30) business days after the date of the Dispute Escalation Notice, either Party shall have the right to commence litigation in accordance with Section 10.10 . The Parties agree that all discussions, negotiations and other Information exchanged between the Parties during the foregoing escalation proceedings shall be without prejudice to the legal position of a Party in any subsequent Action.
Section 10.9 SPECIFIC PERFORMANCE . From and after the Distribution, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement or any Ancillary Agreement, the Parties agree that the Party or Parties to this Agreement or such Ancillary Agreement who are or are to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its or their rights under this Agreement or such Ancillary Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that, from and after the Distribution, the remedies at law for any breach or threatened breach of this Agreement or any Ancillary Agreement, including monetary damages, are inadequate compensation for any loss, that any defense in any action for specific performance that a remedy at law would be adequate is hereby waived, and that any requirements for the securing or posting of any bond with such remedy are hereby waived.
Section 10.10 FORUM . Subject to the prior exhaustion of the procedures set forth in Section 10.8 , each of the Parties agrees that, notwithstanding anything herein, all Actions arising out of or in connection with this Agreement or any Ancillary Agreement (except to the extent any such Ancillary Agreement provides otherwise), or for recognition and enforcement of any judgment arising out of or in connection with the foregoing agreements, shall be tried and determined exclusively in the state or federal courts in the State of Florida, County of Duval, and each of the Parties hereby irrevocably submits with regard to any such Action for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the Parties hereby expressly waives any right it may have to assert, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any such Action: (a) any claim that it is not subject to personal jurisdiction in the aforesaid courts for any reason; (b) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts; and (c) any claim that (i) any of the aforesaid courts is an inconvenient or inappropriate forum for such Action, (ii) venue is not proper in any of the aforesaid courts and (iii) this Agreement or any such Ancillary Agreement, or the subject matter hereof or thereof, may not be enforced in or by any of the aforesaid courts. Each of the Parties agrees that mailing of process or other papers in connection with any such Action in the manner provided in Section 10.4 or any other manner as may be permitted by Law shall be valid and sufficient service thereof.
Section 10.11 WAIVER OF JURY TRIAL . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE WAIVER IN THIS SECTION, (B) SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (C) SUCH PARTY MAKES SUCH WAIVER VOLUNTARILY AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS, AGREEMENTS AND CERTIFICATIONS HEREIN.
28
Section 10.12 INTERPRETATION . The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this Agreement.
Section 10.13 SEVERABILITY . If any provision or any portion of any provision of this Agreement shall be held invalid or unenforceable, the remaining portion of such provision and the remaining provisions of this Agreement shall not be affected thereby. If the application of any provision or any portion of any provision of this Agreement to any Person or circumstance shall be held invalid or unenforceable, the application of such provision or portion of such provision to Persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby.
Section 10.14 NO SET-OFF . Each Partys obligation to pay fees or make any other required payments under this Agreement shall not be subject to any right of offset, set-off, deduction or counterclaim, however arising, including, without limitation, pursuant to any claims under any of the Ancillary Agreements.
[Remainder of page intentionally left blank]
29
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their duly authorized representatives as of the date first above written.
FIDELITY NATIONAL FINANCIAL, INC. | ||
By: |
|
|
Name: | ||
Title: | ||
J. ALEXANDERS HOLDINGS, INC. | ||
By: |
|
|
Name: | ||
Title: |
[Signature Page Separation and Distribution Agreement]
Schedule 2.3(b)
Surviving FNF Group and JAX Group Agreements
None
Schedule 10.2
Transaction Expenses
Exhibit 3.1
FORM OF AMENDED AND RESTATED CHARTER
OF
J. ALEXANDERS HOLDINGS, INC.
Pursuant to the provisions of Section 48-20-107 of the Tennessee Business Corporation Act, the undersigned corporation hereby amends and restates the original Charter and any and all prior amendments as follows:
1. Name . The name of the corporation is J. Alexanders Holdings, Inc. (the Corporation).
2. For Profit . The Corporation is for profit.
3. Principal Office . The street address of the Corporations principal office is:
3401 West End Avenue, Suite 260
Nashville, Tennessee 37203
County of Davidson
4. Registered Agent and Registered Office .
(a) The name of the Corporations initial registered agent is:
The Corporation Trust Company.
(b) The street address of the Corporations initial registered office in Tennessee is:
800 S. Gay Street, Suite 2021
Knoxville, Tennessee 37929
County of Knox
5. Incorporator . The name and address of the incorporator is:
Ryan Hoffman
c/o Bass, Berry & Sims PLC
150 3rd Avenue South, Suite 2800
Nashville, TN 37201
6. Purpose . The Corporation is organized to do any and all things and to exercise any and all powers, rights, and privileges that a corporation may now or hereafter be organized to do or to exercise under the Tennessee Business Corporation Act as the same exists or may hereafter be amended (TBCA).
7. Stock .
(a) Capitalization . The total number of shares of stock which the Corporation shall have authority to issue is [ ], consisting of (a) [ ] shares of Class
A Common Stock, par value $0.001 per share (the Class A Common Stock), (b) [ ] shares of Class B Common Stock, par value $0.001 per share (the Class B Common Stock and, together with the Class A Common Stock, the Common Stock) and (c) [ ] shares of Preferred Stock, par value $0.001 per share (the Preferred Stock).
(b) Reclassifications . At the time that this Charter becomes effective under the TBCA (the Effective Time) each share of common stock, par value $0.001 per share, of the Corporation, which was designated as Common Stock in the original Charter and was authorized, issued and outstanding or held as treasury stock immediately prior to the Effective Time shall, automatically and without further action by any shareholder, be reclassified into one share of Class B Common Stock.
(c) Common Stock .
(i) Voting Rights .
(A) Each holder of Class A Common Stock, as such, shall be entitled to one vote for each share of Class A Common Stock held of record by such holder on all matters on which shareholders generally are entitled to vote; provided, however, that, except as otherwise required by applicable law, holders of Class A Common Stock, as such, shall not be entitled to vote on any amendment to this Charter (including any amendment relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Charter (including any amendment relating to any series of Preferred Stock) or pursuant to the TBCA.
(B) Each holder of Class B Common Stock, as such, shall be entitled to one vote for each share of Class B Common Stock held of record by such holder on all matters on which shareholders generally are entitled to vote; provided, however, that except as otherwise required by applicable law, holders of Class B Common Stock, as such, shall not be entitled to vote on any amendment to this Charter (including any amendment relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Charter (including any amendment relating to any series of Preferred Stock) or pursuant to the TBCA. A holder of one share of Class B Common Stock, as such, shall be entitled at all times to the same number of vote or votes as a holder of one share of Class A Common Stock, as such, on all matters on which shareholders generally are entitled to vote.
(C) Except as otherwise required in this Charter or by applicable law, the holders of Common Stock shall vote together as a single class on all matters (or, if any holders of Preferred Stock are entitled to vote together with the holders of Common Stock, as a single class with such holders of Preferred Stock).
(ii) Dividends . Subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock or any class or series of stock having a
2
preference over or the right to participate with the Class A Common Stock with respect to the payment of dividends, dividends may be declared and paid on the Class A Common Stock out of the assets of the Corporation that are by law available therefor at such times and in such amounts as the Board of Directors of the Corporation (the Board) in its discretion shall determine. Dividends shall not be declared or paid on the Class B Common Stock.
(iii) Liquidation, Dissolution or Winding Up . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and of the preferential and other amounts, if any, to which the holders of Preferred Stock shall be entitled, the holders of all outstanding shares of Class A Common Stock shall be entitled to receive the remaining assets of the Corporation available for distribution ratably in proportion to the number of shares held by each such shareholder. The holders of shares of Class B Common Stock, as such, shall not be entitled to receive any assets of the Corporation in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
(iv) Transfer of Class B Common Stock .
(A) A holder of Class B Common Stock may only transfer shares of Class B Common Stock to another person if such holder transfers a corresponding number of LLC Units to such person in accordance with the provisions of the Amended and Restated Limited Liability Company Agreement of J. Alexanders Holdings, LLC, a Delaware limited liability company (Holdings), as such agreement may be amended from time to time in accordance with the terms thereof (the LLC Agreement).
(B) Any purported transfer of shares of Class B Common Stock in violation of the restrictions described in the immediately preceding paragraph (the Restrictions) shall be null and void. If, notwithstanding the foregoing prohibition, a person shall, voluntarily or involuntarily, purportedly become or attempt to become, the purported owner (Purported Owner) of shares of Class B Common Stock in violation of the Restrictions, then the Purported Owner shall not obtain any rights in and to such shares of Class B Common Stock (the Restricted Shares), and the purported transfer of the Restricted Shares to the Purported Owner shall not be recognized by the Corporations transfer agent (the Transfer Agent).
(C) Upon a determination by the Board that a person has attempted or may attempt to transfer or to acquire Restricted Shares, the Board may take such action as it deems advisable to refuse to give effect to such transfer or acquisition on the books and records of the Corporation, including without limitation to cause the Transfer Agent to record the Purported Owners transferor as the record owner of the Restricted Shares, and to institute proceedings to enjoin or rescind any such transfer or acquisition.
(D) The Board may, to the extent permitted by law, from time to time establish, modify, amend or rescind, by bylaw or otherwise, regulations and procedures not inconsistent with the provisions of this Article 7(c)(iv) for determining whether any acquisition of shares of Class B Common Stock would violate the Restrictions and for the
3
orderly application, administration and implementation of the provisions of this Article 7(c)(iv). Any such procedures and regulations shall be kept on file with the Secretary of the Corporation and with its Transfer Agent and shall be made available for inspection by any prospective transferee and, upon written request, shall be mailed to any holder of shares of Class B Common Stock.
(E) The Board shall have all powers necessary to implement the Restrictions, including without limitation the power to prohibit the transfer of any shares of Class B Common Stock in violation thereof.
(F) Upon the exchange of any shares of Class B Common Stock for Class A Common Stock of the Corporation, such shares of Class B Common Stock shall immediately be cancelled on the books and records of the Corporation and shall no longer be deemed to be issued and outstanding capital stock of the Corporation.
(G) As used in this Charter, (i) LLC Units shall mean Class A Units of Holdings, or any successor entity thereto, issued under the LLC Agreement and (ii) person means any individual, firm, corporation, partnership, limited liability company, trust, joint venture or other enterprise or entity.
(H) In the event of a reclassification or other similar transaction as a result of which the shares of Class A Common Stock are converted into another security, then a holder of shares of Class B Common Stock shall be entitled to receive upon exchange of such shares (together with a commensurate number of LLC Units) the amount of such security that such holder would have received if such exchange had occurred immediately prior to the record date of such reclassification or other similar transaction, taking into account any adjustment as a result of any subdivision (by any stock split or dividend, reclassification or otherwise) or combination (by reverse stock split, reclassification or otherwise) of such security that occurs after the effective time of such reclassification or other similar transaction.
(I) The Corporation covenants that it will at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of issuance upon exchange of the outstanding shares of Class B Common Stock and LLC Units for Class A Common Stock, such number of shares of Class A Common Stock that are issuable upon any such exchange and shall exchange such shares of Class B Common Stock and a commensurate number of LLC Units for shares of Class A Common Stock pursuant to the LLC Agreement; provided that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of any such exchange by delivery of shares of Class A Common Stock which are held in the treasury of the Corporation. The Corporation covenants that all shares of Class A Common Stock issued upon any such exchange will, upon issuance, be validly issued, fully paid and non-assessable.
(d) Preferred Stock . With respect to shares designated and classified as Preferred Stock, the Board of Directors of the Corporation, pursuant to Section 48-16-102 of the TBCA, are authorized to establish and to determine, in whole or in part, to the full extent permitted by Tennessee law and within the limits set forth in Section 48-16-101 of the TBCA,
4
the preferences, limitations and relative rights of the Preferred Stock or any series of Preferred Stock. Unless and until otherwise specified by the Board of Directors, the shares classified and designated as Preferred Stock will have a par value of $0.001 per share. The Board of Directors may authorize one or more series of Preferred Stock with preferences, limitations and relative rights, including, but not limited to:
(i) special, conditional or limited voting rights, or no right to vote, except to the extent limits or conditions are prohibited by the TBCA;
(ii) characteristics as redeemable or convertible;
(iii) distributions to the shareholders calculated in any manner, including dividends that may be cumulative, noncumulative, or partially cumulative;
(iv) preferences over any class of shares with respect to distributions, including dividends and distributions, upon dissolution of this corporation; or
(v) specification and changes in the specification of par values.
In accordance with Section 48-16-101 of the TBCA, the foregoing list of designations, preferences, limitations and relative rights is not exhaustive.
(e) Changes in Common Stock . If the Corporation in any manner subdivides or combines the outstanding shares of Class A Common Stock, the outstanding shares of the Class B Common Stock shall be proportionately subdivided or combined, as the case may be. If the Corporation in any manner subdivides or combines the outstanding shares of Class B Common Stock, the outstanding shares of Class A Common Stock shall be proportionately subdivided or combined, as the case may be.
8. No Preemptive Rights . The shareholders of the Corporation shall not have preemptive rights.
9. Directors . All corporate powers shall be exercised by or under the authority, and the business and affairs of the Corporation shall be managed under the direction, of a Board of Directors consisting of not less than three nor more than fifteen (15) directors, the exact number of Directors to be determined from time to time by a majority of the Board of Directors. The Board of Directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of Directors constituting the entire Board of Directors. Each class of Directors shall be elected for a three-year term. The term of the initial Class I directors shall terminate on the date of the 2015 annual meeting of shareholders; the term of the initial Class II directors shall terminate on the date of the 2016 annual meeting of shareholders and the term of the initial Class III directors shall terminate on the date of the 2017 annual meeting of shareholders. At each annual meeting of shareholders beginning in 2015, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of Directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible, and any additional Director of any class
5
elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of Directors shorten the term of any incumbent Director.
A Director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors, including a vacancy that results from an increase in the number of directors or a vacancy that results from the removal of a director with cause, may be filled only by a majority of the Directors then in office.
A person nominated for election as a Director shall be elected by the affirmative vote of a plurality of the votes cast for the Director nominee in person or by proxy at a meeting for the election of Director at which a quorum is present.
10. Removal of Directors . Subject to the rights of any voting group established either in the Corporations Bylaws or by any applicable shareholders agreement, any director may be removed from office at any time but only for cause and only by (a) the affirmative vote of the holders of 66 2 ⁄ 3 percent of the voting power of the shares entitled to vote for the election of directors, considered for this purpose as one class, or (b) the affirmative vote of a majority of the entire Board of Directors then in office.
11. Officers . The officers of the Corporation shall be chosen in such a manner, shall hold their offices for such terms and shall carry out such duties as are determined solely by the Board of Directors, subject to the right of the Board of Directors to remove any officers at any time with or without cause.
12. Director Liability and Indemnification .
(a) Limitation of Liability . Any person who is or was a director of the Corporation shall have no liability to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director provided that this Article 12 shall not eliminate or limit liability of a director for (i) any breach of the directors duty of loyalty to the Corporation or its shareholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) unlawful distributions under Section 48-18-302 of the TBCA. If the TBCA or any successor statute is amended or other Tennessee law is enacted after adoption of this provision to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the TBCA, as so amended from time to time, or such successor statute or other Tennessee law. Any repeal or modification of this Article 12 or subsequent amendment of the TBCA or enactment of other applicable Tennessee law shall not affect adversely any right or protection of a director of the Corporation existing at the time of such repeal, modification, amendment or enactment or with respect to events occurring prior to such time.
6
(b) Indemnification and Advancement of Expenses . The Corporation shall indemnify every person who is or was a party or is or was threatened to be made a party to any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, including without limitation any action, suit or proceeding by or in right of the Corporation, by reason of the fact that he or she is or was a director or officer or is or was serving at the request of the Corporation as a director, officer, employee, manager, agent, or trustee of another corporation or of a partnership, limited liability company, joint venture, trust, employee benefit plan, or other enterprise, including service on a committee formed for any purpose (and, in each case, his or her heirs, executors, and administrators), against all expense, liability, and loss (including counsel fees, judgments, fines, ERISA excise taxes, penalties, and amounts paid in settlement) actually and reasonably incurred or suffered in connection with such action, suit, or proceeding, to the fullest extent permitted by applicable law, as in effect on the date hereof and as hereafter amended. Such indemnification shall include advancement of expenses in advance of final disposition of such action, suit, or proceeding, subject to the provision of any applicable statute.
(c) Non-Exclusivity of Rights . The indemnification and advancement of expenses provisions of this Article 12 shall not be exclusive of any other right that any person (and his or her heirs, executors, and administrators) may have or hereafter acquire under any statute, this Charter, the Corporations Bylaws, resolution adopted by the shareholders, resolution adopted by the Board of Directors, agreement, or insurance, purchased by the Corporation or otherwise, both as to action in his or her official capacity and as to action in another capacity. The Corporation is hereby authorized to provide for indemnification and advancement of expenses through its Bylaws, resolution of shareholders, resolution of the Board of Directors, or agreement, in addition to that provided by this Charter.
13. Control Share Acquisitions . The provisions of Sections 48-103-201 through 48-103-209 of the TBCA, otherwise known as the Tennessee Control Share Acquisition Act, as in effect as of the date hereof and any amendment thereto or successor provision thereto, and explicitly including Sections 48-103-308 and 48-103-309, shall apply to and govern, to the fullest extent provided by law, any Control Share Acquisition of this Corporations shares, as those terms are defined in the Tennessee Control Share Acquisition Act.
14. Business Combinations .
(a) Application of the Act . The provisions of Sections 48-103-201 through 48-103-209 of the TBCA, otherwise known and cited as the Tennessee Business Combination Act, as in effect as of the date hereof and any amendment thereto or successor provision thereto, shall apply to and govern, to the fullest extent provided by law, any Business Combination, as defined in the Tennessee Business Combination Act.
(b) Corporation Not Liable for Resisting Merger, Exchange, Etc . So long as this Corporation has a class of voting stock registered or traded on a national securities exchange or registered with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, neither the Corporation nor its directors or officers shall be liable at law or equity either for having failed to approve the acquisition of shares by an Interested Shareholder, as defined in the Tennessee Business Combination Act, on or before an Interested
7
Shareholders share acquisition date, or for seeking to enforce or implement the Tennessee Business Combination Act or the Tennessee Control Share Acquisition Act, or for failing to adopt or recommend any amendment to or provision of the Corporations Charter and Bylaws then in effect with respect to the Tennessee Business Combination Act or the Tennessee Control Share Acquisition Act, as in effect as of the date hereof and any amendment thereto or successor provision thereto, or for opposing any proposed merger, exchange, tender offer or significant disposition of assets of the Corporation or any subsidiary because of a good faith belief that the merger, tender offer, exchange or significant disposition of assets would adversely affect the social, legal, environmental or economic circumstances of the Corporation, its employees, customers or suppliers, or the communities in which the Corporation, or its subsidiaries, operate or are located. In making decisions concerning these matters, this Corporations officers and directors may also specifically consider any other relevant factors, including, but not limited to, (i) the financial and managerial resources and future prospects of the other party and (ii) the amount and form of the consideration being offered in relation to the then current market price for the Corporations outstanding shares of capital stock, in relation to the then current value of the Corporation in a freely negotiated transaction and in relation to the Board of Directors estimate of the future value of the Corporation (including the unrealized value of its properties and assets) as an independent concern.
15. Action by Shareholders . Any action required or permitted to be taken by the shareholders of the Corporation may be effected at a duly called annual or special meeting of the shareholders of the Corporation or by a written resolution in lieu of a meeting signed by shareholders representing the number of affirmative votes required for such action at a meeting; provided that, if at any time the Corporation ceases to be a controlled company under the corporate governance rules of the New York Stock Exchange, then at such time and thereafter any action required or permitted to be taken by the shareholders of the Corporation may be effected only at a duly called annual or special meeting of the shareholders of the Corporation, except to the extent that such action may be taken without a meeting in accordance with Section 48-17-104(a) of the TBCA.
16. Special Meetings . Special meetings of shareholders may be called at any time, but only by the Chairman of the Board of Directors, the Chief Executive Officer of the Corporation, or upon a resolution by or affirmative vote of the Board of Directors, and not by the shareholders. Any business transacted at any special meeting of shareholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting.
17. Exclusive Forum . The Court of Chancery of the State of Tennessee (the Court of Chancery) shall be the sole and exclusive forum for any shareholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or employee of the Corporation to the Corporation or the Corporations shareholders, (iii) any action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of the TBCA or this Charter or the Corporations Bylaws, or (iv) any action asserting a claim against the Corporation, its directors, officers or employees governed by the internal affairs doctrine. For the avoidance of doubt, any person purchasing or otherwise acquiring any interest in any shares of stock of the Corporation shall be deemed to have notice
8
of, and consented to the provisions of, this Article 17. If any provision or provisions of this Article 17 shall be held to be invalid, illegal or unenforceable as applied to any person or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article 17 (including, without limitation, each portion of any sentence of this Article 17 containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons and circumstances shall not in any way be affected or impaired thereby.
18. Charter and Bylaws Amendments . Notwithstanding any other provision of this Charter, the affirmative vote of holders of 66 2 ⁄ 3 percent of the voting power of the shares entitled to vote at an election of directors, voting together as a single class, shall be required to reduce the maximum number of shares the Corporation may issue under Article 7(a), and to amend or repeal Articles 7(b)(e), 9, 10, 12, 13, 14, 15, 16, 17 and 18 of this Charter, or to amend, alter, change or repeal, or to adopt any provisions of this Charter or of the Corporations Bylaws in a manner that is inconsistent with the purpose and intent of the aforementioned Articles.
19. Corporate Opportunities . To the maximum extent permitted under the TBCA, the Corporation renounces any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, business opportunities that are from time to time presented to its directors who are not employees of the Corporation or any subsidiary (Outside Directors), other than any such opportunity expressly presented to an Outside Director in such Outside Directors capacity as a director of the Corporation; and no such Outside Director shall be liable to the Corporation or its shareholders for breach of any fiduciary or other duty by reason of the fact that such Outside Director personally or on behalf of any other person pursues or acquires such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to the Corporation or its subsidiaries. For purposes of this Article 19, a director who is the Chairman of the Board of the Corporation shall not be deemed to be an employee of the Corporation solely by reason of holding such position. No amendment or repeal of this Article 19 shall apply to or have any effect on the liability or alleged liability of any Outside Director for or with respect to business opportunities of which such Outside Director becomes aware prior to such amendment or repeal. Any person purchasing or otherwise acquiring any interest in any capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article 19.
9
Exhibit 3.2
FORM OF AMENDED AND RESTATED BYLAWS OF
J. ALEXANDERS HOLDINGS, INC.
(a Tennessee Corporation)
As effective on , 2015
PREAMBLE
These Bylaws are subject to, and governed by, the Tennessee Business Corporation Act (the TBCA) and the Amended and Restated Charter of J. Alexanders Holdings, Inc., a Tennessee corporation (the Corporation), then in effect (the Charter). In the event of a direct conflict between the provisions of these Bylaws and the mandatory provisions of the TBCA or the provisions of the Charter, such provisions of the TBCA or the Charter, as the case may be, will be controlling.
ARTICLE I
Offices
SECTION 1. Registered Office . The registered office of the Corporation shall be fixed in the Charter.
SECTION 2. Other Offices . The Corporations Board of Directors (the Board of Directors) may at any time establish other offices at any place or places where the Corporation is qualified to do business or as the business of the Corporation may require.
ARTICLE II
Meetings of Shareholders
SECTION 1. Annual Meetings . The annual meeting of shareholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year at such place, date and time, within or without the State of Tennessee, as the Board of Directors shall determine.
SECTION 2. Special Meetings . Special meetings of shareholders for the transaction of such business as may properly come before the meeting may be held only upon call by the Board of Directors, the Chairperson of the Board of Directors or the Chief Executive Officer, and shall be held at such place, date and time, within or without the State of Tennessee, as may be specified by such body or person or persons in such call. Whenever the directors shall fail to fix such place, the meeting shall be held at the principal executive office of the Corporation.
SECTION 3. Notice of Meetings . Except as otherwise provided by law, at least ten (10) days and not more than two (2) months before each meeting of shareholders, written notice of the time, date and place of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each shareholder. Notice may be delivered personally, by mail or by electronic transmission in accordance with Section 48-11-202 of the TBCA.
SECTION 4. Postponement and Cancellation of Meeting . Any previously scheduled annual or special meeting of the shareholders may be postponed, and any previously scheduled annual or special meeting of the shareholders called by the Board of Directors may be canceled, by resolution of the Board of Directors upon public notice given prior to the time previously scheduled for such meeting of shareholders.
SECTION 5. Record Date . The Board of Directors shall fix as the record date for the determination of shareholders entitled to notice of a shareholders meeting, to vote or to take any other action, a date that is not less than ten (10) nor more than seventy (70) days before the meeting or action requiring a determination of shareholders. A record date fixed for a shareholders meeting is effective for any adjournment of such meeting unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than four (4) months after the date fixed for the original meeting.
SECTION 6. Shareholder Lists . After the record date for a meeting has been fixed, the Corporation shall prepare an alphabetical list of the names of all shareholders who are entitled to notice of a shareholders meeting. Such list will show the address of and number of shares held by each shareholder. The shareholders list will be available for inspection by any shareholder, beginning two (2) business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the Corporations principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder or his or her agent or attorney is entitled on written demand to inspect and, subject to the requirements of the TBCA, to copy the list, during regular business hours and at his or her expense, during the period it is available for inspection.
SECTION 7. Acceptance of Shareholder Documents . If the name signed on a shareholder document (e.g., a vote, consent, waiver, or proxy appointment) corresponds to the name of a shareholder, the Corporation, if acting in good faith, is entitled to accept such shareholder document and give it effect as the act of the shareholder. If the name signed on such shareholder document does not correspond to the name of a shareholder, the Corporation, if acting in good faith, is nevertheless entitled to accept such shareholder document and to give it effect as the act of the shareholder if:
(a) | the shareholder is an entity and the name signed purports to be that of an officer or agent of the entity; |
(b) | the name signed purports to be that of a fiduciary representing the shareholder and, if the Corporation requests, evidence of fiduciary status acceptable to the Corporation has been presented with respect to such shareholder document; |
(c) | the name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the Corporation requests, evidence of this status acceptable to the Corporation has been presented with respect to the shareholder document; |
(d) | the name signed purports to be that of a pledgee, beneficial owner or attorney-in-fact of the shareholder and, if the Corporation requests, evidence acceptable to the Corporation of the signatorys authority to sign for the shareholder has been presented with respect to such shareholder document; or |
(e) | two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one (1) of the co-owners, and the person signing appears to be acting on behalf of all the co-owners. |
2
The Corporation is entitled to reject a shareholder document if the Secretary or other officer or agent authorized to tabulate votes, acting in good faith, has a reasonable basis for doubt about the validity of the signature on such shareholder document or about the signatorys authority to sign for the shareholder.
SECTION 8. Quorum . Except as otherwise provided by law or the Charter, a quorum for the transaction of business at any meeting of shareholders shall consist of the holders of record of a majority of the issued and outstanding shares of the capital stock of the Corporation entitled to vote at the meeting, present in person or by proxy. If there be no such quorum, the holders of a majority of such shares so present or represented may adjourn the meeting from time to time, without further notice, until a quorum shall have been obtained. When a quorum is once present it is not broken by the subsequent withdrawal of any shareholder.
SECTION 9. Organization . Meetings of shareholders shall be presided over by the Chairperson, if any, or if none or in the Chairpersons absence the Vice Chairperson, if any, or if none or in the Vice Chairpersons absence the Chief Executive Officer, if any, or if none or in the Chief Executive Officers absence the President, if any, or if none or in the Presidents absence a Vice President, or, if none of the foregoing is present, by a chairperson to be chosen by the shareholders entitled to vote who are present in person or by proxy at the meeting. The Secretary of the Corporation, or in the Secretarys absence an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the presiding officer of the meeting shall appoint any person present to act as secretary of the meeting. The Board of Directors may adopt before a meeting such rules for the conduct of the meeting, including an agenda and limitations on the number of speakers and the time which any speaker may address the meeting, as the Board of Directors determines to be necessary or appropriate for the orderly and efficient conduct of the meeting. Subject to any rules for the conduct of the meeting adopted by the Board of Directors, the person presiding at the meeting may also adopt, before or at the meeting, rules for the conduct of the meeting.
SECTION 10. Voting; Proxies; Required Votes; Action by Written Consent .
(a) | General . At each meeting of shareholders, every shareholder entitled to vote may do so in person or by proxy appointed by instrument in writing, subscribed by such shareholder or by such shareholders duly authorized attorney-in-fact, and, unless the Charter provides otherwise, shall have one vote for each share of stock entitled to vote registered in the name of such shareholder on the books of the Corporation on the applicable record date fixed pursuant to these Bylaws. No proxy shall be valid after the expiration of eleven (11) months from the date of the execution, unless the proxy expressly provides otherwise. |
3
(b) | Director Elections . Directors shall be elected as set forth in the Charter. |
(c) | All Other Matters . Except as otherwise required by law or the Charter, any other action of the shareholders shall be authorized by the vote of the majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter. |
(d) | Actions by Written Consent . Any action required or permitted to be taken by the shareholders of the Corporation may be effected at a duly called annual or special meeting of the shareholders of the Corporation or by the shareholders in writing in lieu of such a meeting to the extent permitted by the Charter and these Bylaws. |
SECTION 11. Business at Annual and Special Meetings . No business may be transacted at an annual or special meeting of shareholders other than business that is:
(a) | specified in a notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors or an authorized committee thereof, |
(b) | otherwise brought before the meeting by or at the direction of the Board of Directors or an authorized committee thereof, or |
(c) | otherwise brought before the meeting by a Noticing Shareholder who complies with the notice procedures set forth in Article II, Section 12 of these Bylaws. |
A Noticing Shareholder must be either a Record Holder or a Nominee Holder. A Record Holder is a shareholder that holds of record stock of the Corporation entitled to vote at the meeting on the business (including any election of a director) to be appropriately conducted at the meeting. A Nominee Holder is a shareholder that holds such stock through a nominee or street name holder of record and can demonstrate to the Corporation such indirect ownership of such stock and such Nominee Holders entitlement to vote such stock on such business. Clause (c) of Section 9 of this Article II shall be the exclusive means for a Noticing Shareholder to make director nominations or submit other business before a meeting of shareholders (other than proposals brought under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the Exchange Act), and included in the Corporations notice of meeting, which proposals are not governed by these Bylaws). Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a shareholders meeting except in accordance with the procedures set forth in Section 12 of this Article II of these Bylaws and Section 11 of this Article II.
4
SECTION 12. Notice of Shareholder Business to be Conducted at a Meeting of Shareholders . In order for a Noticing Shareholder to properly bring any item of business before a meeting of shareholders, the Noticing Shareholder must give timely notice thereof in writing to the Secretary of the Corporation in compliance with the requirements of this Section 12 of Article II. This Section 12 of Article II shall constitute an advance notice provision for annual meetings for purposes of Rule 14a-4(c)(1) under the Exchange Act.
(a) | To be timely, a Noticing Shareholders notice shall be delivered to the Secretary at the principal executive offices of the Corporation: |
(i) | in the case of an annual meeting of shareholders, not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the preceding years annual meeting; provided, however, that in the event the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of the 90th day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation; and |
(ii) | in the case of a special meeting of shareholders called for the purpose of electing directors, not earlier than the close of business on the one-hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such special meeting or the tenth (10th) day following the date on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. |
In no event shall any adjournment or postponement of an annual meeting, or the announcement thereof, commence a new time period for the giving of a shareholders notice as described above.
(b) | To be in proper form, whether in regard to a nominee for election to the Board of Directors or other business, a Noticing Shareholders notice to the Secretary must: |
(i) | Set forth, as to the Noticing Shareholder and, if the Noticing Shareholder holds for the benefit of another, the beneficial owner on whose behalf the nomination or proposal is made, the following information together with a representation as to the accuracy of the information: |
(A) | the name and address of the Noticing Shareholder as they appear on the Corporations books and, if the Noticing Shareholder holds for the benefit of another, the name and address of such beneficial owner (collectively Holder), |
(B) | the class or series and number of shares of the Corporation that are, directly or indirectly, owned beneficially and/or of record, and the date such ownership was acquired, |
(C) |
any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or |
5
series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, whether or not the instrument or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise (a Derivative Instrument) that is directly or indirectly owned beneficially by the Holder and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation, |
(D) | any proxy, contract, arrangement, understanding, or relationship pursuant to which the Holder has a right to vote or has granted a right to vote any shares of any security of the Corporation, |
(E) | any short interest in any security of the Corporation (for purposes of these Bylaws a person shall be deemed to have a short interest in a security if the Holder directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), |
(F) | any rights to dividends on the shares of the Corporation owned beneficially by the Holder that are separated or separable from the underlying shares of the Corporation, |
(G) | any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership or limited liability company or similar entity in which the Holder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, is the manager, managing member or directly or indirectly beneficially owns an interest in the manager or managing member of a limited liability company or similar entity, |
(H) | any performance-related fees (other than an asset-based fee) that the Holder is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, |
(I) | any arrangements, rights, or other interests described in Sections 12(b)(i)(C)-(H) held by members of such Holders immediate family sharing the same household, |
(J) |
a representation that the Noticing Shareholder intends to appear in person or by proxy at the meeting to nominate the person(s) named or propose the business specified in the notice and whether or not |
6
such shareholder intends to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporations outstanding shares required to approve the nomination(s) or the business proposed and/or otherwise to solicit proxies from shareholders in support of the nomination(s) or the business proposed, |
(K) | a certification regarding whether or not such shareholder and Shareholder Associated Persons have complied with all applicable federal, state and other legal requirements in connection with such shareholders and/or Shareholder Associated Persons acquisition of shares or other securities of the Corporation and/or such shareholders and/or Shareholder Associated Persons acts or omissions as a shareholder of the Corporation, |
(L) | any other information relating to the Holder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations thereunder, and |
(M) | any other information as reasonably requested by the Corporation. |
Such information shall be provided as of the date of the notice and shall be supplemented by the Holder not later than 10 days after the record date for the meeting to disclose such ownership as of the record date.
(ii) | If the notice relates to any business other than a nomination of a director or directors that the shareholder proposes to bring before the meeting, the notice must set forth: |
(A) | a brief description of the business desired to be brought before the meeting (including the text of any resolutions proposed for consideration), the reasons for conducting such business at the meeting, and any material direct or indirect interest of the Holder or any Shareholder Associated Persons in such business, and |
(B) | a description of all agreements, arrangements and understandings, direct and indirect, between the Holder, and any other person or persons (including their names) in connection with the proposal of such business by the Holder. |
(iii) | Set forth, as to each person, if any, whom the Holder proposes to nominate for election or reelection to the Board of Directors: |
(A) | all information relating to the nominee (including, without limitation, the nominees name, age, business and residence address and principal occupation or employment and the class or series and number of shares of capital stock of the Corporation that are owned beneficially or of record by the nominee) that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations thereunder (including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected), |
7
(B) | a description of any agreements, arrangements and understandings between or among such shareholder or any Shareholder Associated Person, on the one hand, and any other persons (including any Shareholder Associated Person), on the other hand, in connection with the nomination of such person for election as a director, and |
(C) | a description of all direct and indirect compensation and other material monetary agreements, arrangements, and understandings during the past three years, and any other material relationships, between or among the Holder and respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Item 404 of Regulation S-K if the Holder making the nomination or on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the registrant for purposes of Item 404 and the nominee were a director or executive officer of such registrant. |
(iv) | With respect to each nominee for election or reelection to the Board of Directors, the Noticing Shareholder shall include a completed and signed questionnaire, representation, and agreement required by Article II, Section 13 of these Bylaws. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of the proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable shareholders understanding of the independence, or lack thereof, of the nominee. |
(c) |
Notwithstanding anything in Article II, Section 12(a) to the contrary, if the number of directors to be elected to the Board of Directors is increased and there |
8
is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the preceding years annual meeting, a shareholders notice required by these Bylaws shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10 th day following the day on which the public announcement naming all nominees or specifying the size of the increased Board of Directors is first made by the Corporation. |
(d) | For purposes of these Bylaws, public announcement shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the Exchange Act and the rules and regulations thereunder. As used in these Bylaws, the term Shareholder Associated Person means, with respect to any shareholder, (i) any person acting in concert with such shareholder, (ii) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such shareholder (other than a shareholder that is a depositary) and (iii) any person controlling, controlled by or under common control with any shareholder, or any Shareholder Associated Person identified in clauses (i) or (ii) above. An affiliate is any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. Control is defined as the possession, direct or indirect, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of voting securities, by contract, or otherwise. The term associate of a person means: (i) any corporation or organization (other than the registrant or a majority-owned subsidiary of the registrant) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of equity securities, (ii) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of the registrant or any of its parents or subsidiaries. |
(e) |
Only those persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible to serve as directors. Only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in these Bylaws, provided, however, that, once business has been properly brought before the meeting in accordance with this Section 12(e) of Article II, nothing in this Section 12(e) of Article II shall be deemed to preclude discussion by any shareholder of such business. If any information submitted pursuant to this Section 12 of Article II by any shareholder proposing a nominee(s) for election as a director at a meeting of shareholders is inaccurate in any material respect, such information shall be deemed not to have been provided in accordance with this Section 12 of |
9
Article II. Except as otherwise provided by law, the Charter, or these Bylaws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in compliance with the procedures set forth in these Bylaws and, if he should determine that any proposed nomination or business is not in compliance with these Bylaws, he shall so declare to the meeting and any such nomination or business not properly brought before the meeting shall be disregarded or not be transacted. |
(f) | Notwithstanding the foregoing provisions of these Bylaws, a Noticing Shareholder also shall comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in these Bylaws; provided, however, that any references in these Bylaws to the Exchange Act or the rules thereunder are not intended to and shall not limit the requirements applicable to nominations or proposals as to any other business to be considered pursuant to Section 11 or this Section 12 of Article II. |
(g) | Nothing in these Bylaws shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Corporations proxy statement pursuant to Rule 14a-8 under the Exchange Act. Notice of shareholder proposals that are, or that the Noticing Shareholder intends to be, governed by Rule 14a-8 under the Exchange Act are not governed by these Bylaws. |
SECTION 13. Submission of Questionnaire, Representation and Agreement . To be eligible to be a nominee for election or reelection as a director of the Corporation by a Holder, a person must complete and deliver (in accordance with the time periods prescribed for delivery of notice under Section 12 of Article II of these Bylaws) to the Secretary at the principal executive offices of the Corporation a written questionnaire providing the information requested about the background and qualifications of such person and the background of any other person or entity on whose behalf the nomination is being made and a written representation and agreement (the questionnaire, representation, and agreement to be in the form provided by the Secretary upon request) that such person:
(a) | is not and will not become a party to: |
(i) | any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how the person, if elected as director of the Corporation, will act or vote on any issue or question (a Voting Commitment) that has not been disclosed to the Corporation, or |
(ii) | any Voting Commitment that could limit or interfere with the persons ability to comply, if elected as a director of the Corporation, with the persons fiduciary duties under applicable law, and |
(b) | in the persons individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as director of the Corporation, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality, and stock ownership and trading policies and guidelines of the Corporation. |
10
ARTICLE III
Board of Directors
SECTION 1. General Powers . The business, property and affairs of the Corporation shall be managed by, or under the direction of, the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Charter required to be exercised or done by the shareholders.
SECTION 2. Qualification; Number; Term; Remuneration .
(a) | Each director shall be at least eighteen (18) years of age. A director need not be a shareholder, a citizen of the United States, or a resident of the State of Tennessee. The Board of Directors shall consist of no fewer than three (3) or more than fifteen (15) members. The exact number of directors, within the minimum and maximum range for the size of the Board of Directors, shall be set in accordance with the Charter. |
(b) | Directors shall be elected as set forth in the Charter. |
(c) | Directors may be reimbursed or paid in advance their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. |
SECTION 3. Vacancies . Vacancies shall be filled as set forth in the Charter.
SECTION 4. Quorum and Manner of Voting . Except as otherwise provided by law or the Charter, a majority of the fixed number of directors if the Corporation has a fixed board size or a majority of the number of directors prescribed, or if no number is prescribed, the number in office immediately before the meeting begins, if the Corporation has a variable range board shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting from time to time to another time and place without notice, if the time and place to which the meeting is adjourned are fixed at the meeting at which the adjournment is taken, and if the period of adjournment does not exceed one (1) month in any one (1) adjournment. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
11
SECTION 5. Places of Meetings . Meetings of the Board of Directors may be held at any place within or without the State of Tennessee, as may from time to time be determined by the Board of Directors, or as may be specified in the notice of meeting.
SECTION 6. Regular Meetings . Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors shall from time to time determine. Notice need not be given of regular meetings.
SECTION 7. Special Meetings . Special meetings of the Board of Directors shall be held whenever called by the Chairperson of the Board, Chief Executive Officer, or President or by a majority of the directors then in office. Special meetings shall be held upon notice of time, date and place sent by any usual means of communication, including electronic transmission in accordance with Section 48-11-202, not less than one (1) day before the special meeting.
SECTION 8. Organization . At all meetings of the Board of Directors, the Chairperson, if any, or if none or in the Chairpersons absence or inability to act, the President, or in the Presidents absence or inability to act, any Vice President who is a member of the Board of Directors, or in such Vice Presidents absence or inability to act, a chairperson chosen by the directors, shall preside. The Secretary of the Corporation shall act as secretary at all meetings of the Board of Directors when present, and, in the Secretarys absence, the presiding officer may appoint any person to act as secretary of the meeting.
SECTION 9. Resignation . Any director may resign at any time upon written notice to the Corporation and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the letter of resignation.
SECTION 10. Attendance by Telephone . Unless otherwise restricted by the Charter, members of the Board of Directors, or of any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone, video conference or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
SECTION 11. Action by Written Consent . Except as otherwise provided in the Charter, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all the directors consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors. If the directors consent to taking such action without a meeting, the affirmative vote of a majority of the directors is the act of the Board of Directors.
ARTICLE IV
Committees
SECTION 1. Appointment; Limitations . From time to time the Board of Directors by a resolution adopted by a majority of the Board of Directors may appoint any committee or committees for any purpose or purposes, to the extent lawful, which shall have powers as shall be determined and specified by the Board of Directors in the resolution of appointment. No
12
Committee of the Board shall take any action to authorize distributions (except according to a formula or method prescribed by the Board of Directors, fill vacancies on the Board of Directors or any of its committees, adopt amend, or repeal bylaws, authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors, or authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within the limits specifically prescribed by the Board. No Committee of the Board shall take any action which is required in these Bylaws, in the Charter or by statute to be taken by a vote of a specified proportion of the whole Board of Directors.
SECTION 2. Procedures, Quorum and Manner of Acting . Each committee shall fix its own rules of procedure, and shall meet where and as provided by such rules or by resolution of the Board of Directors. Except as otherwise provided by law, the presence of a majority of the then appointed members of a committee shall constitute a quorum for the transaction of business by that committee, and in every case where a quorum is present the affirmative vote of a majority of the members of the committee present shall be the act of the committee. Each committee shall keep minutes of its proceedings, and actions taken by a committee shall be reported to the Board of Directors.
SECTION 3. Action by Written Consent . Except as otherwise provided in the Charter, any action required or permitted to be taken at any meeting of any committee may be taken without a meeting if all the members of such committee consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of such committee. If the members of a committee consent to taking such action without a meeting, the affirmative vote of a majority of the members of the committee is the act of the committee.
SECTION 4. Term; Termination . In the event any person shall cease to be a director of the Corporation, such person shall simultaneously therewith cease to be a member of any committee appointed by the Board of Directors.
ARTICLE V
Officers
SECTION 1. Appointment and Qualifications . The Board of Directors shall appoint the officers of the Corporation, which shall include a Chairperson of the Board, Chief Executive Officer, President, Treasurer and Secretary and may include, by appointment, one or more Vice Presidents (any one or more of whom may be given an additional designation of rank or function) and such Assistant Treasurers, such Assistant Secretaries and such other officers as the Board may from time to time deem proper. Each officer shall have such powers and duties as may be prescribed by these Bylaws and as may be assigned by the Board of Directors or the Chief Executive Officer. Any two or more offices may be held by the same person unless specifically prohibited therefrom by law.
SECTION 2. Term of Office and Remuneration . Each officer shall serve until the earlier of his or her removal, the expiration of the term for which he or she is appointed or until
13
his or her successor has been appointed and qualified. Appointment of an officer shall not itself create contract rights between the Corporation and such officer or agent. Any vacancy in any office arising from any cause may be filled by the Board of Directors. The remuneration of all officers of the Corporation may be fixed by the Board of Directors or in such manner as the Board of Directors shall provide.
SECTION 3. Resignation; Removal . Any officer may resign at any time upon written notice to the Corporation and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Any officer shall be subject to removal, with or without cause, at any time by vote of a majority of the entire Board of Directors, and any officer appointed by an executive officer or by a committee may be removed either with or without cause by the officer or committee who appointed him or her or by the Chairperson, the Chief Executive Officer or the President.
SECTION 4. Chairperson of the Board . The Chairperson of the Board of Directors, if there be one, shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may from time to time be assigned by the Board of Directors.
SECTION 5. Chief Executive Officer . The Chief Executive Officer shall be the chief executive officer of the Corporation, and shall have such duties as customarily pertain to that office. The Chief Executive Officer shall have general management and supervision of the property, business and affairs of the Corporation and over its other officers; may appoint and remove assistant officers and other agents and employees, other than officers referred to in Section 1 of this Article V; may execute and deliver in the name of the Corporation powers of attorney, contracts, bonds and other obligations and instruments; and shall have such other powers and authority as from time to time may be assigned by the Board of Directors.
SECTION 6. President . The President shall have such duties as customarily pertain to that office. The President shall have general management and supervision of the property, business and affairs of the Corporation and over its other officers; may appoint and remove assistant officers and other agents and employees, other than officers referred to in Section 1 of this Article V; may execute and deliver in the name of the Corporation powers of attorney, contracts, bonds and other obligations and instruments; and shall have such other powers and authority as from time to time may be assigned by the Board of Directors or the Chief Executive Officer.
SECTION 7. Vice President . A Vice President may execute and deliver in the name of the Corporation contracts and other obligations and instruments pertaining to the regular course of the duties of said office, and shall have such other authority as from time to time may be assigned by the Board of Directors, the Chief Executive Officer or the President.
SECTION 8. Treasurer . The Treasurer shall in general have all duties incident to the position of Treasurer and such other duties as may be assigned by the Board of Directors, the Chief Executive Officer or the President.
14
SECTION 9. Secretary . The Secretary shall in general have all the duties incident to the office of Secretary and such other duties as may be assigned by the Board of Directors, the Chief Executive Officer or the President. The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and shall prepare and record all votes and all minutes of all such meetings in a book to be kept for that purpose. He or she shall also perform like duties for any committee when required. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors when required, and unless directed otherwise by the Board of Directors, shall keep a stock record containing the names of all persons who are shareholders of the Corporation, showing their place of residence and the number of shares held by each of them. The Secretary shall have the responsibility of authenticating records of the Corporation.
SECTION 10. Assistant Officers . Any assistant officer shall have such powers and duties of the officer such assistant officer assists as such officer or the Board of Directors shall from time to time prescribe.
SECTION 11. Other Officers . The Chief Executive Officer or Board of Directors may appoint other officers and agents for any group, division or department into which this Corporation may be divided by the Board of Directors, with titles as the Chief Executive Officer or Board of Directors may from time to time deem appropriate. All such officers and agents shall receive such compensation, have such tenure and exercise such authority as the Chief Executive Officer or Board of Directors may specify. All appointments made by the Chief Executive Officer hereunder and all the terms and conditions thereof must be reported to the Board of Directors.
ARTICLE VI
Indemnification of Directors, Officers and Others
SECTION 1. Indemnification and Advancement of Expenses . The Corporation shall indemnify and advance expenses to each director and officer of the Corporation, or any person who may have served at the request of the Corporations Board of Directors or its President or Chief Executive Officer as a director or officer of another corporation (and, in either case, such persons heirs, executors and administrators), to the full extent allowed by the laws of the State of Tennessee, both as now in effect and as hereafter adopted. The Corporation may indemnify and advance expenses to any employee or agent of the Corporation who is not a director or officer (and such persons heirs, executors and administrators) to the same extent as to a director or officer, if the Board of Directors determines that doing so is in the best interests of the Corporation.
SECTION 2. Non-Exclusivity of Rights . The indemnification and expense advancement provisions of Section 1 of this Article VI shall not be exclusive of any other right which any person (and such persons heirs, executors and administrators) may have or hereafter acquire under any statute, provision of the Charter, provision of these Bylaws, resolution adopted by the shareholders, resolution adopted by the Board of Directors, agreement, or insurance (purchased by the Corporation or otherwise), both as to action in such persons official capacity and as to action in another capacity.
15
SECTION 3. Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any individual who is or was a director, officer, employee or agent of the Corporation, or who, while a director, officer, employee or agent of the Corporation, is or was serving at the request of the Corporations Board of Directors or its Chief Executive Officer as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any expense, liability or loss whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under this Article or the TBCA.
SECTION 4. Survival.
(a) | The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article VI shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of such persons heirs, executors and administrators. |
(b) | The provisions of this Article VI shall be a contract between the Corporation, on the one hand, and each person who was a director and officer at any time while this Article VI is in effect and any other person indemnified hereunder, on the other hand, pursuant to which the Corporation and each such person intend to be legally bound. Any repeal or modification of the provisions of this Article VI shall not adversely affect any right or protection of any director, officer, employee or agent of the Corporation existing at the time of such repeal or modification, regardless of whether a claim arising out of such action, omission or state of facts is asserted before or after such repeal or amendment. |
SECTION 5. Enforceability of Right to Indemnification . The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article VI shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. If a claim under Section 1 of this Article VI is not paid in full by the Corporation within thirty (30) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. The burden of proving that such indemnification or reimbursement or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its shareholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its shareholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified by the Corporation against any expenses reasonably incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part.
16
SECTION 6. Primacy of Indemnification by the Corporation . The Corporation acknowledges that certain directors and officers may have certain rights to indemnification, advancement of expenses and/or insurance provided by the shareholders of the Corporation or one or more affiliates of such shareholders of the Corporation other than the Corporation and its subsidiaries (any of such entities, together with their affiliates (other than the Company and its subsidiaries), the Other Indemnitors) as a partner or employee of any of such entities (or their respective payroll companies) or pursuant to separate written agreements, which the Corporation and the Other Indemnitors intend to be secondary to the primary obligation of the Corporation to provide indemnification as provided herein. If any Other Indemnitor pays or causes to be paid, for any reason, any amounts otherwise indemnifiable hereunder or under any other indemnification agreement or arrangement (whether pursuant to contract, by-laws or charter) to a person indemnifiable hereunder, then (i) the applicable Other Indemnitor shall be fully subrogated to all of such persons rights with respect to such payment and (ii) the Corporation shall indemnify, reimburse and hold harmless the applicable Other Indemnitor for the payments actually made. The Corporation agrees that the Other Indemnitors are express third party beneficiaries of the terms of this paragraph.
ARTICLE VII
Books and Records
SECTION 1. Location . The books and records of the Corporation may be kept at such place or places within or outside the State of Tennessee as the Board of Directors or the respective officers in charge thereof may from time to time determine.
SECTION 2. Addresses of Shareholders . Notices of meetings and all other corporate notices may be delivered personally or mailed to each shareholder at the shareholders address as it appears on the records of the Corporation. The record books containing the names and addresses of all shareholders, the number and class of shares of stock held by each and the dates when they respectively became the owners of record thereof shall be kept by the Secretary as prescribed by the Bylaws and by such officer or agent as shall be designated by the Board of Directors.
ARTICLE VIII
Certificates Representing Stock
SECTION 1. Certificates: Signatures Rules and Regulations . There may be issued to each holder of fully paid shares of capital stock of the Corporation a certificate or certificates for such shares; however, the Corporation may issue uncertificated shares of its capital stock. Every holder of capital stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate, signed by or in the name of the Corporation by the Chairperson or Vice Chairperson of the Board of Directors, or the President or Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, representing the number of shares registered in certificate form. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may
17
be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The name of the holder of record of the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the books of the Corporation. The Board of Directors may appoint one or more transfer agents for the Corporations capital stock and may make, or authorize such agent or agents to make, all such rules and regulations as are expedient governing the issue, transfer and registration of shares of the capital stock of the Corporation and any certificates representing such shares.
SECTION 2. Transfers of Stock . The capital stock of the Corporation shall be transferred only upon the books of the Corporation either (a) if such shares are certificated, by the surrender to the Corporation or its transfer agent of the old stock certificate therefor properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, or (b) if such shares are uncertificated, upon proper instructions from the holder thereof (or such holders attorney lawfully constituted in writing), in each case with such proof of the authenticity of instruction and/or signature as the Corporation or its transfer agent may reasonably require. Prior to due presentment for registration of transfer of a security (whether certificated or uncertificated), the Corporation shall treat the registered owner of such security as the person exclusively entitled to vote, receive notifications and dividends, and otherwise to exercise all the rights and powers of such security.
SECTION 3. Fractional Shares . The Corporation may, but shall not be required to, issue certificates for fractions of a share or pay in money the value of fractions, arrange for disposition of fractional shares by the shareholders; and issue scrip in registered or bearer form entitling the holder to receive a full share upon surrendering enough scrip to equal a full share Corporation or of its agent, but such scrip shall not entitle the holder to any rights of a shareholder except as therein provided.
SECTION 4. Lost, Stolen or Destroyed Certificates . The Corporation may issue a new certificate of stock in place of any certificate, theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of any lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify, or otherwise indemnify, the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate.
ARTICLE IX
Dividends
Subject always to the provisions of law and the Charter, the Board of Directors shall have full power to determine whether any, and, if any, what part of any, funds legally available for the payment of dividends shall be declared as dividends and paid to eligible shareholders; the division of the whole or any part of such funds of the Corporation shall rest wholly within the lawful discretion of the Board of Directors, and it shall not be required at any time, against such discretion, to divide or pay any part of such funds among or to the shareholders as dividends or otherwise; and before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to
18
time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interest of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
Ratification
Any transaction, questioned in any lawsuit on the ground of lack of authority, defective or irregular execution, adverse interest of director, officer or shareholder, non-disclosure, miscomputation, or the application of improper principles or practices of accounting, may be ratified before or after judgment by the Board of Directors or by the shareholders, and if so ratified shall have the same force and effect as if the questioned transaction had been originally duly authorized. Such ratification shall be binding upon the Corporation and its shareholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction.
ARTICLE XI
Fiscal Year
The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board of Directors. Unless otherwise fixed by the Board of Directors, the fiscal year of the Corporation shall end on the Sunday closest to December 31st.
ARTICLE XII
Waiver of Notice
Whenever notice is required to be given by these Bylaws or by the Charter or by law, a written waiver thereof, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except when such person attends the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Any waiver of notice shall be filed with the minutes of the corporate records.
ARTICLE XIII
Bank Accounts, Drafts, Contracts, Etc.
SECTION 1. Bank Accounts and Drafts . In addition to such bank accounts as may be authorized by the Board of Directors, the primary financial officer or any person designated by said primary financial officer, whether or not an employee of the Corporation, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as he or she may deem necessary or appropriate, payments from such bank accounts to be made upon and according to the check of the Corporation in accordance with the written instructions of said primary financial officer, or other person so designated by such primary financial officer.
19
SECTION 2. Contracts . The Board of Directors may authorize any person or persons, in the name and on behalf of the Corporation, to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments . The Chairperson, Chief Executive Officer, the President or any other person designated by either of them shall have the power and authority to execute and deliver proxies, powers of attorney and other instruments on behalf of the Corporation in connection with the rights and powers incident to the ownership of stock by the Corporation. The Chairperson, the President or any other person authorized by proxy or power of attorney executed and delivered by either of them on behalf of the Corporation may attend and vote at any meeting of shareholders of any company in which the Corporation may hold stock, and may exercise on behalf of the Corporation any and all of the rights and powers incident to the ownership of such stock at any such meeting, or otherwise as specified in the proxy or power of attorney so authorizing any such person. The Board of Directors, from time to time, may confer like powers upon any other person.
SECTION 4. Financial Reports . The Board of Directors may appoint the primary financial officer or other fiscal officer or any other officer to cause to be prepared and furnished to shareholders entitled thereto any special financial notice and/or financial statement, as the case may be, which may be required by any provision of law.
ARTICLE XIV
Amendments
In furtherance and not in limitation of the powers conferred by law, subject to any limitations contained elsewhere in the Charter or these Bylaws, these Bylaws may be adopted, amended or repealed by a majority of the Board of Directors of the Corporation, and any Bylaws adopted by the Board of Directors may be amended or repealed by the affirmative vote of the holders of at least 66 2 / 3 percent of the voting power of the outstanding shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class; provided, however, that no provision of the Bylaws may be adopted, amended or repealed which shall interpret or qualify, or impair or impede the implementation of any provision of the Charter or which is otherwise inconsistent with the provisions of the Charter. Any inconsistency between these Bylaws and the Charter shall be construed in favor of the Charter.
20
ARTICLE XV
Miscellaneous
When used in these Bylaws and when permitted by applicable law, the terms written and in writing shall include any electronic transmission, as defined in Section 48-11-202 of the TBCA, including without limitation any telegram, cablegram, facsimile transmission and communication by electronic mail, and address shall include the recipients electronic address for such purposes.
21
Exhibit 3.3
FORM OF
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
J. ALEXANDERS HOLDINGS, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
Dated , 2015
by and among
J. ALEXANDERS HOLDINGS, LLC
AND THE
OTHER PARTIES HERETO
THE MEMBERSHIP INTERESTS AND UNITS ISSUED PURSUANT TO THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (COLLECTIVELY, THE LLC INTERESTS ) HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS. THE LLC INTERESTS MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME WITHOUT EFFECTIVE REGISTRATION UNDER SUCH ACT AND LAWS OR EXEMPTION THEREFROM, AND COMPLIANCE WITH THE OTHER SUBSTANTIAL RESTRICTIONS ON TRANSFER SET FORTH HEREIN.
THE LLC INTERESTS ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER SPECIFIED IN THIS AGREEMENT, AND IN CERTAIN CASES, THE 2015 MANAGEMENT INCENTIVE PLAN OF THE COMPANY, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH INTERESTS UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO ANY TRANSFER. A COPY OF THIS AGREEMENT SHALL BE PROMPTLY FURNISHED BY THE COMPANY TO A HOLDER OF ANY LLC INTERESTS UPON WRITTEN REQUEST AND WITHOUT CHARGE.
TABLE OF CONTENTS
Page | ||||||||
ARTICLE I REPRESENTATIONS AND WARRANTIES OF THE PARTIES | 1 | |||||||
1.1 |
Representations and Warranties of the Company | 1 | ||||||
1.2 |
Representations and Warranties of the Members | 2 | ||||||
ARTICLE II ORGANIZATION | 2 | |||||||
2.1 |
Formation of Company | 2 | ||||||
2.2 |
Name | 2 | ||||||
2.3 |
Office; Agent for Service of Process | 3 | ||||||
2.4 |
Term | 3 | ||||||
2.5 |
Purpose and Scope | 3 | ||||||
2.6 |
Authorized Acts | 3 | ||||||
2.7 |
Fiscal Year | 4 | ||||||
2.8 |
Qualification to do Business | 4 | ||||||
ARTICLE III MEMBERS; CONTRIBUTIONS | 4 | |||||||
3.1 |
Capital Contributions | 4 | ||||||
3.2 |
Interest Payments | 4 | ||||||
3.3 |
Ownership and Issuance of Units | 4 | ||||||
3.4 |
Profits Interests | 5 | ||||||
3.5 |
Forfeiture of Management Company Class B Units | 6 | ||||||
3.6 |
Forfeiture of Management Units | 6 | ||||||
3.7 |
Voting Rights | 8 | ||||||
3.8 |
Withdrawals | 8 | ||||||
3.9 |
Liability of the Members Generally | 8 | ||||||
3.10 |
Capital Accounts | 9 | ||||||
ARTICLE IV MANAGEMENT | 9 | |||||||
4.1 |
Management and Control of the Company | 9 | ||||||
4.2 |
Indemnification | 10 | ||||||
4.3 |
Officers | 11 | ||||||
ARTICLE V DISTRIBUTIONS | 12 | |||||||
5.1 |
Distributions Generally | 12 | ||||||
5.2 |
Regular Distributions | 12 | ||||||
5.3 |
Tax Distributions | 12 | ||||||
5.4 |
Distributions of Securities | 12 | ||||||
5.5 |
Restricted Distributions | 13 | ||||||
5.6 |
Withholding Tax Payments and Obligations | 13 | ||||||
ARTICLE VI ALLOCATIONS | 13 | |||||||
6.1 |
General Application | 13 | ||||||
6.2 |
Certain Matters | 13 | ||||||
6.3 |
Special Allocations | 14 | ||||||
6.4 |
Transfer of Interest | 15 | ||||||
6.5 |
Tax Allocations | 15 |
i
ARTICLE VII ACCOUNTING AND TAX MATTERS | 16 | |||||||
7.1 |
Tax Returns | 16 | ||||||
7.2 |
Tax Matters Member | 16 | ||||||
7.3 |
Accounting Methods; Elections; Information | 16 | ||||||
7.4 |
Partnership Status | 16 | ||||||
ARTICLE VIII TRANSFERS OF UNITS | 17 | |||||||
8.1 |
Restrictions on Transfers of Units | 17 | ||||||
8.2 |
Transfers in Violation of Agreement | 17 | ||||||
ARTICLE IX INFORMATION RIGHTS, CONFIDENTIALITY AND ADDITIONAL AGREEMENTS | 17 | |||||||
9.1 |
Information Rights | 17 | ||||||
9.2 |
Confidentiality | 17 | ||||||
ARTICLE X AMENDMENT AND TERMINATION | 18 | |||||||
10.1 |
Amendment or Modification; Waiver | 18 | ||||||
10.2 |
Amendments by the Managing Member | 18 | ||||||
10.3 |
Termination of Agreement | 18 | ||||||
10.4 |
Termination as to a Party | 18 | ||||||
ARTICLE XI DISSOLUTION; LIQUIDATION | 19 | |||||||
11.1 |
Dissolution | 19 | ||||||
11.2 |
Final Accounting | 19 | ||||||
11.3 |
Liquidation | 19 | ||||||
11.4 |
Cancellation of Certificate of Formation | 19 | ||||||
ARTICLE XII EXCHANGE PROCEDURES | 20 | |||||||
12.1 |
Exchanges of Units | 20 | ||||||
12.2 |
Common Stock to be Issued | 21 | ||||||
ARTICLE XIII MISCELLANEOUS | 21 | |||||||
13.1 |
Certain Defined Terms | 21 | ||||||
13.2 |
Severability | 29 | ||||||
13.3 |
Entire Agreement | 29 | ||||||
13.4 |
Successors and Assigns | 29 | ||||||
13.5 |
Counterparts | 29 | ||||||
13.6 |
Remedies | 29 | ||||||
13.7 |
Notices | 29 | ||||||
13.8 |
Governing Law | 30 | ||||||
13.9 |
Interpretation | 30 | ||||||
13.10 |
Descriptive Headings | 30 | ||||||
13.11 |
Business Opportunities | 30 | ||||||
13.12 |
Transactions with Interested Persons; Standards of Conduct | 31 | ||||||
13.13 |
Appointment of Managing Member as Attorney-in-Fact | 31 | ||||||
13.14 |
Limited Authorization of Managing Member | 32 | ||||||
13.15 |
Loans to the Company | 32 | ||||||
13.16 |
No Third Party Beneficiaries | 32 | ||||||
13.17 |
Further Assurances | 32 |
ii
13.18 | Construction | 32 | ||||||
13.19 |
Waiver of Action for Partition | 32 | ||||||
13.20 |
Relations with Members | 32 | ||||||
13.21 |
Accounting Considerations | 33 |
Schedules
Schedule I List of Members
Exhibits
Exhibit A Company Incentive Plan
Exhibit B Form of Exchange Notice
iii
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
J. ALEXANDERS HOLDINGS, LLC
A DELAWARE LIMITED LIABILITY COMPANY
THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this Agreement ) is entered into as of , 2015, by and among (i) J. A LEXANDER S H OLDINGS , LLC , a Delaware limited liability company (the Company ), (ii) J. A LEXANDER S H OLDINGS , I NC . , a Tennessee corporation ( J. Alexanders ), (iii) JAX Investments, Inc., a Delaware corporation (JAX Investments), (iv) each member of management who has previously been granted Class B Units pursuant to the Company Incentive Plan (each, a Management Member ), and (v) B LACK K NIGHT A DVISORY S ERVICES , LLC , a Delaware limited liability company (the Management Company ). The Managing Member, JAX Investments, the Management Members and the Management Company are sometimes referred to herein collectively as the Members and individually as a Member . Certain capitalized terms used herein are defined in Section 13.1 .
WHEREAS , the Company was formed as a Delaware limited liability company under the name J. Alexanders Holdings, LLC effective as of February 6, 2013, by the filing of a Certificate of Formation with the Delaware Secretary of State;
WHEREAS , the Company initially adopted a limited liability company agreement dated as of February 25, 2013;
WHEREAS , the Company adopted an amended and restated limited liability company agreement dated as of January 1, 2015 (the Prior Agreement );
WHEREAS , the Company issued Class B Units to the Management Members on January 1, 2015 pursuant to the Company Incentive Plan;
WHEREAS , on or prior to the date hereof, in accordance with the terms and provisions of the Prior Agreement (i) the former members of the Company, other than the Management Members, transferred and assigned their Interests in the Company to J. Alexanders in exchange for shares of common stock of J. Alexanders, and (ii) a former member of the Company assigned a portion of its Interest in the Company to JAX Investments;
WHEREAS , the Company wishes to grant Class B Units to the Management Company outside of the Company Incentive Plan, subject to the terms set forth herein and in an Award Agreement to be entered into with the Management Company; and
WHEREAS , the parties hereto desire to amend and restate the Prior Agreement in its entirety.
NOW, THEREFORE , in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
1.1 Representations and Warranties of the Company . The Company hereby represents and warrants to each Member that as of the date of this Agreement:
(a) it is a limited liability company duly formed, validly existing and in good standing under the laws of the state of its formation, it has full power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby, and the execution, delivery and performance by it of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary limited liability company action;
1
(b) this Agreement has been duly and validly executed and delivered by it and (assuming the due execution hereof by the Members) constitutes a legal and binding obligation of the Company, enforceable against it in accordance with its terms; and
(c) the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby will not, with or without the giving of notice or lapse of time, or both, (i) violate any provision of law, statute, rule or regulation to which the Company is subject, (ii) violate any order, judgment or decree applicable to the Company or (iii) conflict with, or result in a breach or default under, any term or condition of the Companys organizational documents or any agreement or instrument to which the Company is a party or by which it is bound.
1.2 Representations and Warranties of the Members . Each Member (as to himself or itself only) represents and warrants to the Company and each other Member that, as of the time such Member becomes a party to this Agreement:
(a) he or she is a natural person, or it is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, or it is a limited partnership or a limited liability company duly formed, validly existing, and in good standing under the laws of its state of formation, as the case may be, it has full power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby, and the execution, delivery and performance by it of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate, partnership or limited liability company action, as the case may be;
(b) this Agreement has been duly and validly executed and delivered by such Member, and this Agreement constitutes a legal and binding obligation of such Member, enforceable against such Member in accordance with its terms; and
(c) the execution, delivery and performance by such Member of this Agreement and the consummation by such Member of the transactions contemplated hereby (and thereby, if applicable) will not, with or without the giving of notice or lapse of time, or both, (i) violate any provision of law, statute, rule or regulation to which such Member is subject, (ii) violate any order, judgment or decree applicable to such Member or (iii) conflict with, or result in a breach or default under, any term or condition of any agreement or other instrument to which such Member is a party or by which such Member is bound.
ARTICLE II
ORGANIZATION
2.1 Formation of Company . The Certificate of Formation has heretofore been duly filed with the Secretary of State of the State of Delaware. Upon the execution of this Agreement, J. Alexanders shall be the sole Managing Member and shall be designated as an authorized person within the meaning of the Act. The rights, powers, duties, obligations and liabilities of the Members shall be determined pursuant to the Act and this Agreement. To the extent that the rights, powers, duties, obligations and liabilities of any Member are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control.
2.2 Name . The name of the Company is J. Alexanders Holdings, LLC. The Company Business shall be conducted under such name or under such other names as the Managing Member may deem appropriate in compliance with applicable law.
2
2.3 Office; Agent for Service of Process . The address of the Companys registered office in Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. The Managing Member may change the registered office and the registered agent of the Company from time to time. The principal office and place of business of the Company shall be located in Nashville, Tennessee. The Managing Member may change the principal office or place of business of the Company at any time and may cause the Company to establish other offices or places of business.
2.4 Term . The term of the Company shall continue until the dissolution of the Company in accordance with the provisions of Article XI or as otherwise provided by law.
2.5 Purpose and Scope .
(a) The purpose and business of the Company (the Company Business ) is to pursue, directly or indirectly through its Subsidiaries or other Persons, business opportunities in the restaurant industry and engage in any lawful act or activity for which limited liability companies may be organized under the Act and to engage in any and all activities necessary or incidental thereto. Notwithstanding anything to the contrary in this Agreement, all matters material to the affairs and business of the Company shall be determined by the Managing Member.
(b) The Company shall have the power to do any and all acts reasonably necessary, appropriate, proper, advisable, incidental or convenient to or for the furtherance of the Company Business and for the protection and benefit of the Company, and shall have, without limitation, any and all of the powers that may be exercised on behalf of the Company by the Managing Member pursuant to this Agreement, including pursuant to Section 2.6 .
2.6 Authorized Acts . In furtherance of the Company Business, but subject to all other provisions of this Agreement, the Managing Member, on behalf of the Company, is hereby authorized and empowered:
(a) To do any and all things and perform any and all acts necessary or incidental to the Company Business and otherwise in accordance with law;
(b) To enter into, and take any action under, any contract, agreement or other instrument as the Managing Member shall determine to be necessary or desirable to further the objects and purposes of the Company, including contracts or agreements with any Member or prospective Member;
(c) To open, maintain and close bank accounts and draw checks or other orders for the payment of money and open, maintain and close brokerage, money market fund and similar accounts;
(d) To hire, for usual and customary payments and expenses, employees, consultants, brokers, attorneys, accountants and such other agents for the Company as it may deem necessary or advisable, and authorize any such agent to act for and on behalf of the Company;
(e) To incur expenses and other obligations on behalf of the Company in accordance with this Agreement, and, to the extent that funds of the Company are available for such purpose, pay all such expenses and obligations;
(f) To borrow money or guarantee any obligation, which borrowing or guarantee shall be on such terms as the Managing Member shall determine;
(g) To make loans to and investments in Subsidiaries or other Persons;
3
(h) To merge or consolidate with or convert into another limited liability company (organized under the laws of Delaware or any other state), a corporation (organized under the laws of Delaware or any other state) or any other business entity (as defined in Section 18-209(a) of the Act), regardless of whether the Company is the survivor of such merger or consolidation;
(i) To bring and defend actions and proceedings at law or in equity and before any governmental, administrative or other regulatory agency, body or commission;
(j) To establish reserves in accordance with this Agreement or the Act for contingencies and for any other purpose of the Company;
(k) To prepare and file all necessary returns and statements, pay all taxes, assessments and other impositions applicable to the assets of the Company, and withhold amounts with respect thereto from funds otherwise distributable to any Member;
(l) To determine the accounting methods and conventions to be used in the preparation of any accounting or financial records of the Company; and
(m) To act for and on behalf of the Company in all matters incidental to the foregoing.
2.7 Fiscal Year . Unless otherwise determined by the Managing Member, the fiscal year (the Fiscal Year ) of the Company shall end on the Sunday closest to December 31st unless, for Federal income tax purposes, another Fiscal Year is required. The Company shall have the same Fiscal Year for United States Federal income tax purposes and for accounting purposes.
2.8 Qualification to do Business . Except as the Managing Member shall otherwise determine, the Company shall be qualified or registered under applicable laws of any jurisdiction in which the Company transacts business and may authorize any Person to execute, deliver and file any certificates and documents necessary to effect such qualification or registration, including without limitation, the appointment of agents for service of process in such jurisdictions.
ARTICLE III
MEMBERS; CONTRIBUTIONS
3.1 Capital Contributions . The Capital Accounts of the Members as of the date hereof shall be equal to the Capital Contributions reflected on Schedule I hereto as of date hereof and on the register of the Company, maintained by the Company in accordance with Article VII hereof (the Company Register ). Schedule I shall be amended from time to time in accordance with Article XI to reflect any additional Capital Contribution made by the Members.
3.2 Interest Payments . No interest shall be paid to any Member on any Capital Contributions. The value of all Capital Contributions shall be denominated in U.S. dollars.
3.3 Ownership and Issuance of Units .
(a) (i) As of the date hereof the Company has issued units (the Class A Units ) to each Class A Member in respect of the Class A Interest of such Member. Each Class A Member owns that number of Class A Units as appears next to its name on the Company Register.
(ii) As of the date hereof the Company has issued units (the Class B Units ) to each Class B Member in respect of the Class B Interest of such Member, consisting of the Class B Units issued to the Management Members on January 1, 2015, and the Class B Units issued to the Management Company as of the date of this Agreement. Each Class B Member owns that number of Class B Units as appears next to its name on the Company Register.
4
(iii) The Class B Units issued to the Management Members are governed by (A) this Agreement, (B) the respective Unit Grant Agreements between the Company and the Management Members, which set forth, among other things, vesting provisions and the Hurdle Amount with respect to such Class B Units, and (C) the Company Incentive Plan.
(iv) The Class B Units issued to the Management Company are governed by (A) this Agreement, and (B) the Unit Grant Agreement between the Company and the Management Company, which sets forth, among other things, vesting provisions and the Hurdle Amount with respect to such Class B Units in an amount sufficient, in the determination of the Managing Member, to cause such Class B Units to be properly treated as Profits Interests.
(b) The ownership of issued and outstanding Class A Units and Class B Units shall initially be set forth on Schedule I hereto, which schedule shall be amended from time to time to reflect any changes to the ownership of issued and outstanding Class A Units and Class B Units.
(c) The Managing Member may cause the Company to issue Units in addition to those issued as of the date hereof (including, without limitation, Units which are denominated as Profits Interests and/or subject to vesting or other risks of forfeiture, if applicable).
3.4 Profits Interests .
(a) The Company and each Member agree to treat each Members Class B Interest (each such interest, a Profits Interest ) as a separate profits interest within the meaning of Rev. Proc. 93-27, 1993-2 C.B. 343. Notwithstanding anything to the contrary herein, distributions to each Class B Member pursuant to Section 5.2 shall be limited to the extent necessary so that the Profits Interest of such Class B Member qualifies as a profits interest under Rev. Proc. 93-27, and this Agreement shall be interpreted accordingly. In accordance with Rev. Proc. 2001-43, 2001-2 C.B. 191, the Company shall treat a Member holding a Profits Interest as the owner of such Profits Interest from the date it is granted, and shall file its IRS Form 1065, and issue an appropriate Schedule K-1 to such Member allocating to such Member its distributive share of all items of income, gain, loss, deduction and credit associated with such Profits Interest as if it were fully vested. Each Class B Member agrees to take into account such distributive share in computing its federal income tax liability for the entire period during which it holds the Profits Interest. The Company and each Member agree not to claim a deduction (as wages, compensation or otherwise) for the fair market value of such Profits Interest issued to a Class B Member, either at the time of grant of the Profits Interest or at the time the Profits Interest becomes substantially vested. The undertakings contained in this Section 3.4(a) shall be construed in accordance with Section 4 of Rev. Proc. 2001-43. The provisions of this Section 3.4(a) shall apply regardless of whether or not the holder of a Profits Interest files an election pursuant to Section 83(b) of the Code.
(b) Safe Harbor Election.
(i) The Managing Member is hereby authorized and directed to cause the Company to make an election (the Safe Harbor Election ) to value the Profits Interests issued by the Company as compensation for services to the Company on the date of the issuance, at the liquidation value of such Profits Interests (i.e., a value equal to the amount that would be distributed under Section 5.2 with respect to such Profits Interests in a Hypothetical Liquidation occurring immediately after the issuance of such Profits Interests and assuming for purposes of such Hypothetical Liquidation that all assets of the Company are sold for their fair market values (as reasonably determined by the Managing Member) instead of their values as reflected for capital account purposes), as the same may be permitted pursuant to or in accordance with the finally promulgated successor rules to Proposed Regulations Section 1.83-3(1) and IRS Notice 2005-43 (collectively, the Proposed Rules ). The Managing Member shall cause the Company to make any allocations of items of income, gain, deduction, loss or credit (including forfeiture allocations and elections as to allocation periods) necessary or appropriate to effectuate and maintain the Safe Harbor Election.
5
(ii) Any such Safe Harbor Election shall be binding on the Company and on all of its Members with respect to all transfers of Profits Interests thereafter made by the Company while a Safe Harbor Election is in effect. A Safe Harbor Election once made may be revoked by the Managing Member as permitted by the Proposed Rules or any applicable rule.
(iii) Each Member (including any Person to whom a Profits Interest is transferred in connection with the performance of services), by signing this Agreement or by accepting such transfer, hereby agrees to comply with all requirements of the Safe Harbor Election with respect to all Profits Interests transferred while the Safe Harbor Election remains effective.
(iv) The Managing Member shall file or cause the Company to file all returns, reports and other documentation as may be required to perfect and maintain the Safe Harbor Election with respect to transfers of Profits Interests covered by such Safe Harbor Election.
(v) The Managing Member is hereby authorized and empowered, without further vote or action of the Members, to amend this Agreement as necessary to comply with the Proposed Rules or any rule, in order to provide for a Safe Harbor Election and the ability to maintain or revoke the same, and shall have the authority to execute any such amendment by and on behalf of each Member. Any undertakings by the Members necessary to enable or preserve a Safe Harbor Election may be reflected in such amendments and to the extent so reflected shall be binding on each Member, respectively.
(vi) Each Member agrees to cooperate with the Managing Member to perfect and maintain any Safe Harbor Election, and to timely execute and deliver any documentation with respect thereto reasonably requested by the Managing Member.
3.5 Forfeiture of Management Company Class B Units . Upon the termination of the Management Agreement by the Company pursuant to Section 10(a)(i) or 10(a)(ii) thereof, or by the Management Company pursuant to Section 10(b)(iii) thereof, all unvested Class B Units held by the Management Company or any transferee thereof shall be immediately and automatically cancelled and forfeited for no consideration. In addition, in the event the Management Company or any transferee thereof fails to effect an Exchange of its Class B Units within 90 days following the termination of the Management Agreement (for any reason or no reason), all Class B Units held by the Management Company or any transferee thereof shall be immediately and automatically cancelled and forfeited for no consideration.
3.6 Forfeiture of Management Units.
(a) (i) When used in this Agreement, the term Employment or Employed refers to the employment of the Management Members. Employment will be deemed to continue so long as a Management Member is employed by, or otherwise is providing services to, the Company or its Subsidiaries in any capacity. If a Management Members Employment is with a Subsidiary of the Company and that entity ceases to be a Subsidiary of the Company, the Management Members Employment will be deemed to have terminated when the entity ceases to be a Subsidiary of the Company unless the Management Member transfers his or her Employment to the Company or one of its remaining Subsidiaries. For the avoidance of doubt, it is intended that the Employment status of a Management Member that is referred to in this Agreement will continue to refer to the Employment status of the original Management Member even if such Management Members Class B Units have been transferred to another holder (a Management Units Transferee ). Upon any Management Member ceasing to be Employed by the Company or one of its Subsidiaries (a Terminated Employee ) for any reason (a Termination Event ), subject to the provisions of Sections 3.6(a)(ii), 3.6(a)(iii) and 3.6(b) , except as may be mutually agreed in writing between the Company and such Terminated Employee pursuant to the Terminated Employees Award Agreement, employment agreement or otherwise, the Company may, but shall not be required to, elect to purchase (or elect to have one or more designee(s) purchase, as provided in Section 3.6(a)(iii) below) and, if such option is exercised, such Terminated Employee or the Management Units Transferee shall sell to the Company (or the
6
designee(s), if the Company so elects) all or any portion of the vested Management Units owned by such Management Member or the Management Units Transferee (the Termination Securities ) on the date of the occurrence of such Termination Event (the Termination Date ) at a price per Termination Security equal to the Termination Price (as determined pursuant to Section 3.6(c) below) and in connection with such repurchase shall execute a general release in favor of the Company, its officers, employees, and Members (which such release shall be in a form reasonably acceptable to the Company) and such Members respective Affiliates, equityholders, managers, partners, directors, officers and employees.
(ii) Upon the termination of Employment of any Management Member with the Company or any of its Subsidiaries for any reason, all unvested Management Units held by such Management Member or the Management Units Transferee shall be immediately and automatically cancelled and forfeited for no consideration. Upon the termination of Employment of any Management Member with the Company or any of its Subsidiaries for Cause, all vested and unvested Management Units held by such Management Member or the Management Units Transferee shall be immediately and automatically cancelled and forfeited for no consideration.
(iii) The Company may exercise its right to purchase the Termination Securities pursuant to this Section 3.6 at any time after the Termination Date, provided , that the Calculation Date and the date of closing of such purchase shall not occur earlier than the date that is six (6) months and one (1) day after the date the Termination Securities became vested, unless the Company determines that such delay is not necessary for the award pursuant to which such Management Units were granted to be classified as an equity award under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation (or any applicable successor standards). If the Company chooses to exercise its right to purchase any Termination Security pursuant to this Section 3.6 , it shall choose the Calculation Date and date of closing of such purchase and shall notify the Terminated Employee in writing at least thirty (30) days before the date of closing of the purchase. The Company shall have the option to assign its right to purchase all or any portion of the Termination Securities under this Section 3.6 to the Class A Members, pro rata ( provided that if one or more Class A Members elects not to purchase any Termination Securities, the other Class A Members shall have the right to purchase such Termination Securities pro rata ), and such Class A Members may exercise the Companys rights under this Section 3.6 in the same manner in which the Company could exercise such rights.
(b) The closing of the purchase by the Company of Termination Securities pursuant to Section 3.6(a) shall take place at the principal office of the Company on the date chosen by the Company, which date shall in no event be more than thirty (30) days after determination of the Termination Price. If such date is not a business day, such purchase shall occur on the next succeeding business day. At such closing, (i) the Company shall pay the Terminated Employee or the Management Units Transferee the aggregate Termination Price and (ii) the Terminated Employee or the Management Units Transferee shall transfer the Termination Securities to the Company, free and clear of any lien or encumbrance, with any documentation reasonably requested by the Company to evidence such transfer, which documentation shall require the Terminated Employee or the Management Units Transferee to make the representations and warranties in the final sentence of this 3.6(b) . If the Terminated Employee or the Management Units Transferee fails to execute and deliver all documentation required by the Company on the scheduled closing date of such repurchase, the Company may elect to defer such closing or deposit the consideration representing the Termination Price with a bank or financial institution as escrow holder pending delivery of such documentation. In the event of the foregoing election to deposit the Termination Price into escrow, (i) such Management Units shall be deemed for all purposes to have been transferred to the purchasers thereof on the date such deposit is made; (ii) to the extent that such Management Units are evidenced by certificates, such certificates shall be deemed canceled and the Company shall issue new certificates in the name of the purchaser(s) thereof; (iii) the Company shall make an appropriate notation in its records to reflect the transfer of such Management Units to the purchaser(s) thereof; and (iv) the Person obligated to sell such Management Units shall merely be a creditor with respect to such Management Units with the right only to receive payment of the Termination Price, without interest, from the escrow funds. If, following the one year anniversary of the scheduled
7
closing date for the purchase of such Termination Securities, the proceeds of sale have not been claimed by the Terminated Employee or the Management Units Transferee, the escrow deposit (and any interest earned thereon) shall, subject to the application of any applicable escheat laws, be returned to the Person originally depositing the same, and the Transferors whose Management Units were so purchased shall look solely to the purchaser(s) thereof for payment of the purchase price (subject to reduction for any payments made pursuant to any applicable escheat laws). The transfer of the Termination Securities and acceptance of the aggregate Termination Price by any Person selling such Termination Securities pursuant to this Section 3.6 shall be deemed accompanied with a representation and warranty by such Person that: (1) such Person has full right, title and interest in and to such Termination Securities; (2) such Person has all necessary power and authority and has taken all necessary action to sell such Termination Securities as contemplated hereby; (3) such Termination Securities are free and clear of any and all liens or encumbrances; and (4) there is no adverse claim with respect to such Termination Securities.
(c) For purposes of this Section 3.6 , unless otherwise provided in an Award Agreement, the Termination Price shall be an amount per Termination Security equal to the Fair Market Value of such Termination Security as of the Calculation Date.
(d) The Company (or any designee(s) or assignee(s) of the Company, as the case may be) shall pay the Termination Price in a lump-sum cash payment, by wire transfer or by Company check; provided, however , if the Managing Member determines that (i) such cash payment would result in a violation of any law, statute, rule, regulation, policy, order, writ, injunction, decree or judgment promulgated or entered by any federal, state, local or foreign court or governmental authority applicable to the Company or any of its Subsidiaries, or (ii) after giving effect thereto such payment would result in a default of a financing covenant, then such payment shall be made by delivery of an unsecured promissory note bearing interest at the Prime Rate and payable in two equal installments, plus interest, on the first and second anniversaries of the date of repurchase; provided , that such promissory note shall be subject to mandatory prepayment in full upon a Sale of the Company; provided , further , that at such times as any payment under such promissory note is prohibited under any credit agreement or bond indenture that applies to the Company, no such payment shall be made, and any such payment shall accrue and shall be paid promptly following the date and time that such prohibition no longer exists.
3.7 Voting Rights . Except as otherwise provided in the Act or as otherwise provided herein, but subject to Section 10.1(b) , Members holding Class A Units shall be entitled to one vote or consent right in respect of each Class A Unit with respect to any matters of the Company on which the holders of Class A Units are entitled to vote. Notwithstanding any other provision of this Agreement, the Class B Members shall have no right to vote or consent on any matter under this Agreement or the Act, including the merger, consolidation, conversion or dissolution of the Company.
3.8 Withdrawals . Except as explicitly provided elsewhere herein, no Member shall have any right to (a) withdraw as a Member from the Company, (b) withdraw from the Company all or any part of such Members Capital Contributions, (c) receive property other than cash in return for such Members Capital Contributions or (d) receive any distribution from the Company, without the consent of the other Members except in accordance with Article V and Article XI .
3.9 Liability of the Members Generally . Except as otherwise provided in the Act, no Member of the Company (and none of such Members directors, officers, employees, partners, Affiliates, agents or representatives) shall be obligated personally for any debt, obligation or liability of the Company or any other Member, whether arising in contract, tort or otherwise, solely by reason of being a Member of the Company. Each of the Members acknowledges that its Capital Contributions are subject to the claims of any and all creditors of the Company to the extent provided by the Act and other applicable law. The failure of the Company to observe any formalities or requirements relating to the exercise of its powers or the management of its business or affairs under this Agreement or the Act shall not be grounds for making its Members (or any of such Members directors, officers, employees, partners, Affiliates, agents or representatives) responsible for the liabilities of the Company.
8
3.10 Capital Accounts . There shall be established and maintained for each Member a separate capital account ( Capital Account ). There shall be added to the Capital Account of each Member (a) such Members Capital Contributions, (b) such Members distributive share of Net Income and any item in the nature of income or gain that is specially allocated to the Member pursuant to Section 6.3 , and (c) the amount of any Company liabilities assumed by such Member or which are secured by any property distributed to such Member. There shall be subtracted from the Capital Account of each Member (a) the amount of any money, and the Gross Asset Value of any other property, distributed to such Member, (b) such Members distributive share of Net Loss and any item in the nature of loss or expense that is specially allocated to such Partner pursuant to Section 6.3 , and (c) to the extent not duplicative of any liabilities calculated pursuant to the definition of Capital Contribution, the amount of any liabilities of such Member assumed by the Company or which are secured by any property contributed by such Member to the Company. The foregoing provision and other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such Regulations. In determining the amount of any liability for purposes of this Section 3.10 , there shall be taken into account Section 752(c) of the Code and any other applicable provisions of the Code and Regulations. In the event of a Transfer in accordance with Article VIII , the transferee shall succeed to the Capital Account of the Transferor to the extent that it relates to the transferred interest.
ARTICLE IV
MANAGEMENT
4.1 Management and Control of the Company .
(a) Except as otherwise provided herein, the management, control and operation of the business and affairs of the Company shall be vested exclusively with the Managing Member. The Managing Member shall have the authority to exercise all powers necessary and convenient for the purposes of the Company, including those set forth in Section 2.6 , on behalf, and in the name, of the Company, subject to compliance with the restrictions and other provisions of this Agreement. Subject to the rights and powers of the Managing Member and the limitations thereon contained in this Agreement, the Managing Member may delegate to any Person any or all of its powers, rights and obligations under this Agreement and may appoint, contract or otherwise deal with any Person to perform any acts or services for the Company as the Managing Member may reasonably determine. Notwithstanding any delegation made by the Managing Member, the Managing Member shall oversee any Person so appointed or contracted to perform any acts or services for the Company on the Managing Members behalf and the Managing Member shall be liable for any breaches of this Agreement caused by the foregoing. Unless the authority of an agent designated as an officer is limited in the document appointing such officer or is otherwise specified by the Managing Member, any officer so appointed shall, subject to this Article IV , have the same authority to act for the Company as a corresponding officer of a Tennessee corporation would have to act for a Tennessee corporation in the absence of a specific delegation of authority. The officers of the Company shall have the same fiduciary duties to the Company as an officer of a Tennessee corporation has under Tennessee law. The Managing Member may, in its sole discretion, by vote or resolution thereof ratify any act previously taken by an officer or agent acting on behalf of the Company. The Managing Member is specifically authorized to execute, sign, seal and deliver in the name of and on behalf of the Company any and all agreements, certificates, instruments or other documents requisite to carrying out the intentions and purposes of this Agreement and of the Company.
(b) Unless expressly provided to the contrary in this Agreement, any action, consent, approval, election, decision or determination to be made by the Managing Member under or in connection with this Agreement (including any act by the Managing Member within its discretion under this Agreement and the execution and delivery of any documents or agreements on behalf of the Company) shall be in the sole and absolute discretion of the Managing Member.
(c) Each Member hereby consents to the exercise by the Managing Member of the powers conferred upon the Managing Member by the Act and this Agreement with respect to the management and control of the Company. The Members shall not have any authority or right, in their
9
capacities as Members of the Company, to act for or bind the Company. Any Person dealing with the Company or any Member may rely upon a certificate signed by the Managing Member or a duly authorized officer appointed by the Managing Member, as applicable, as to (a) the identity of any Members; (b) any factual matters relevant to the affairs of the Company; (c) the Persons who are authorized to execute and deliver any document on behalf of the Company; or (d) any action taken or omitted by the Company, the Managing Member or any Member.
(d) The Managing Member as of the date hereof shall serve in such capacity until the earliest of its dissolution, termination, resignation or bankruptcy. Upon the dissolution, termination, resignation or bankruptcy of the Managing Member, the holders of a Majority in Interest of the Class A Members may select a new Managing Member.
4.2 Indemnification .
(a) Indemnification of Members and Officers . The Company shall indemnify, to the fullest extent permitted by the Act as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment), any Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such Person (or any of its Affiliates, directors, officers, employees, agents and representatives) is or was a Member, the Managing Member, an officer of the Company, or is or was serving at the request of the Company as a director, officer, manager or trustee of another corporation, limited liability company, partnership, joint venture, trust or other enterprise from and against all expenses and disbursements (including attorneys fees), judgments, damages, fines and amounts paid in settlement (collectively, Costs ) actually and reasonably incurred by such Person in connection with such suit, action or proceeding. Notwithstanding the foregoing, indemnification shall not be paid to any Person pursuant to this Section 4.2(a) if it is determined by a final, nonappealable order of a court of competent jurisdiction that such Persons actions giving rise to the Costs for which indemnification is sought constituted bad faith or willful misconduct, or, with respect to any criminal action or proceeding, such Person had reasonable cause to believe such Persons conduct was unlawful. Any Person may consult with legal or other professional counsel, and any actions taken by such Person in good faith reliance on, and in accordance with, the written opinion of such counsel shall be deemed to be fully protected and justified and made in good faith.
(b) Indemnification of Employees and Agents . The Managing Member, in its discretion, may authorize the Company to indemnify any Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such Person is or was an employee or agent of the Company, or is or was serving at the request of the Company as an employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, against all Costs actually and reasonably incurred by him in connection with such action, suit or proceeding. Notwithstanding the foregoing, indemnification shall not be paid to any Person pursuant to this Section 4.2(b) if it is determined by a final, nonappealable order of a court of competent jurisdiction that such Persons actions giving rise to the Costs for which indemnification is sought constituted bad faith or willful misconduct, or, with respect to any criminal action or proceeding, such Person had reasonable cause to believe such Persons conduct was unlawful. Any Person may consult with legal or other professional counsel, and any actions taken by such Person in good faith reliance on, and in accordance with, the written opinion of such counsel shall be deemed to be fully protected and justified and made in good faith.
(c) Advance Payments . Except as limited by law, expenses incurred by the indemnified Person in defending any proceeding, including a proceeding by or in the right of the Company, shall be paid by the Company to the indemnified Person in advance of final disposition of the proceeding upon receipt of a written undertaking to repay such amount if the indemnified Person is determined pursuant to this Section 4.2 or adjudicated to be ineligible for indemnification, which undertaking need not be secured and shall be accepted.
10
(d) Non-Exclusivity . The indemnification and advancement of expenses provided by, or granted pursuant to, the other provisions of this Section 4.2 shall not be deemed exclusive of any other rights to which those Persons provided indemnification or advancement of expenses may be entitled under any bylaw, agreement (including the Management Agreement or any employment agreement between an employee on the one hand and the Company or any of its subsidiaries on the other hand), vote of Members or the Managing Member or otherwise, both as to action in such Persons official capacity and as to action in another capacity while holding such office.
(e) Insurance . The Company may purchase and maintain insurance on behalf of any Person who is or was a Member, Managing Member, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, manager, trustee, employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Company would have the power to indemnify him or her against such liability under the provisions of the Act (as presently in effect or hereafter amended) or this Agreement. The Companys indemnification under Section 4.2 of any Person who is or was a Member, Managing Member, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, manager, trustee, employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, shall be reduced by any amounts such Person receives as indemnification under any policy of insurance purchased and maintained on such Persons behalf.
(f) Amendment . This Section 4.2 may be amended pursuant to Article X to decrease the Companys obligations to any indemnitee pursuant to this Section 4.2 only with respect to actions or omissions occurring after the date of such amendment.
4.3 Officers .
(a) Enumeration . The officers of the Company may consist of a Chief Executive Officer, a President, a Treasurer, a Chief Financial Officer, a Secretary, and such other officers, including one or more Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Managing Member may determine.
(b) Appointment . The officers of the Company shall be appointed from time to time by the Managing Member.
(c) Qualification . No officer need be a Member or manager. Any two (2) or more offices may be held by the same Person.
(d) Tenure . Except as otherwise provided by the Act or by this Agreement, each of the officers of the Company shall hold his or her office until his or her successor is elected or until his or her earlier resignation or removal. Any officer may resign by delivering his or her written resignation to the Company, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.
(e) Removal . The Managing Member may remove any officer with or without cause.
(f) Vacancies . Any vacancy in any office may be filled for the unexpired portion of the term by the Managing Member.
(g) Other Powers and Duties . Subject to this Agreement, each officer of the Company shall have in addition to the duties and powers specifically set forth in this Agreement, such duties and powers as are customarily incident to his or her office, and such duties and powers as may be designated from time to time by the Managing Member or the President.
11
ARTICLE V
DISTRIBUTIONS
5.1 Distributions Generally. The Members shall be entitled to receive (a) Regular Distributions when and as determined by the Managing Member, out of funds of the Company legally available therefor, net of any Reserves, payable on such payment dates to Members on such record date as shall be determined by the Managing Member, and (b) Tax Distributions as set forth in Section 5.3 . All determinations made pursuant to this Article V shall be made by the Managing Member in its sole discretion. To the extent that the Managing Member determines that any distributions shall be made to the Members, such distributions shall be made in accordance with the provisions of this Article V .
5.2 Regular Distributions. Subject to Section 3.4(b) , Regular Distributions shall be made as follows:
(a) first , to the Class A Members, pro rata in accordance with their respective Unreturned Capital Contributions, until the amount of each Class A Members Unreturned Capital Contributions has been reduced to zero; and
(b) thereafter, 100% to the Class A Members and the Class B Members in respect of their vested Class B Units, pro rata , in accordance with their respective number of outstanding Class A Units and vested Class B Units.
Notwithstanding the foregoing, no holder of a Class B Unit shall be entitled to receive any distributions (other than Tax Distributions) with respect to such Class B Unit unless and until the aggregate amount of distributions made after the issuance of such Class B Unit to the Members in respect of the Units outstanding at the time of the issuance of such Class B Unit equals the Hurdle Amount with respect to such Class B Unit.
For purposes of determining the amount of distributions under this Section 5.2 , each Member holding a Unit shall be treated as having received any amounts received by any prior Member holding such Unit in connection with any prior distributions made under this Section 5.2 or Section 5.4 .
5.3 Tax Distributions . Notwithstanding the foregoing distribution provisions of this Article V , each Member shall be entitled to a Tax Distribution equal to the Tax Rate multiplied by the cumulative taxable income allocated to the Member for all previous years pursuant to this Agreement plus an estimate for current year to date taxable income (after taking into account cumulative taxable losses allocated to the Member), taking into account capital losses only when, on a standalone basis, they can be deducted for U.S. federal income tax purposes against capital gains allocated to the Member under this Agreement, and reduced by prior Tax Distributions. If the Tax Rate in effect for the current year differs from the Tax Rate in effect for any prior year(s), appropriate adjustments shall be made to the amount of Tax Distributions calculated pursuant to the preceding sentence so as to take into account such varying rates such that, a change in the Tax Rate will not be applied for purposes of the calculations set forth in this Section 5.3 in respect of any year for which such changed Tax Rate was not in effect. Tax Distributions shall be made subject to restrictions under the financing arrangements of the Company and its Subsidiaries, and shall be made as an advance against distributions under Section 5.2(b) and shall have the effect of reducing such distributions. Tax Distributions will be timed in such a manner as to provide the direct or indirect holders of Units with such distributions prior to the due date for their respective estimated tax and actual tax payment obligations.
5.4 Distributions of Securities . Other than with respect to Tax Distributions pursuant to Section 5.3 , which shall be paid in cash, the Managing Member is authorized, in its sole discretion, to make distributions to the Members in the form of Securities or other property received or otherwise held by the Company; provided, however , that, in the event of any such non-cash distribution, such Securities or other property shall be valued at the Fair Market Value thereof and shall be distributed to the Members in the same proportion that cash received upon the sale of such Securities or other property at such Fair Market Value would have been distributed pursuant to Sections 5.2 or 5.3 .
12
5.5 Restricted Distributions . Notwithstanding anything to the contrary contained herein, the Company, and the Managing Member on behalf of the Company, shall not make a distribution to any Member if such distribution would violate the Act or other applicable law.
5.6 Withholding Tax Payments and Obligations . In the event that withholding taxes are paid or required to be paid in respect of amounts distributed, or distributive share allocated, by the Company, such payments or obligations shall be treated as follows:
(a) Payments by the Company . The Company is authorized to withhold from any payment made to, or any distributive share of, a Member, any taxes required by law to be withheld, and in such event, such taxes shall be treated as if an amount equal to such withheld taxes had been paid to the Member rather than paid over to the taxing authority.
(b) Over-withholding . Neither the Company nor the Managing Member shall be liable for any excess taxes withheld in respect of any Members interest in the Company, and, in the event of over withholding, a Members sole recourse shall be to apply for a refund from the appropriate taxing authority. Any refunds of withheld taxes received by the Company shall be allocated and distributed in the manner, as reasonably determined by the Managing Member, that will as closely as practicable put the Members in the position that they would have been in had the Company not withheld such refunded tax.
(c) Certain Withheld Taxes Treated as Demand Loans . Any taxes withheld pursuant to Section 5.6(a) shall be treated as if distributed to the relevant Member to the extent an amount equal to such withheld taxes would then be distributable to such Member and, to the extent in excess of such distributable amounts, as a demand loan payable by the Member to the Company with interest at the lesser of (a) the Prime Rate per annum, and (b) the highest rate per annum permitted by law. The Managing Member may, in its discretion, either demand payment of the principal and accrued interest on such demand loan at any time, and enforce payment thereof by legal process, or may withhold from one or more distributions to a Member amounts sufficient to satisfy such Members obligations under any such demand loan.
(d) Indemnity . In the event that the Company, or the Managing Member or any Affiliate thereof, becomes liable as a result of a failure to withhold and remit taxes in respect of any Member, then such Member (or, if applicable, former Member) shall indemnify and hold harmless the Company, or the Managing Member, as the case may be, in respect of all taxes, including interest and penalties, and any reasonable expenses incurred in any examination, determination, resolution and payment of such liability. The provisions contained in this Section 5.6(d) shall survive the termination of the Company and the withdrawal of any Member.
ARTICLE VI
ALLOCATIONS
6.1 General Application . The rules set forth below in this Article VI shall apply for the purpose of determining each Members allocable share of the items of income, gain, loss and expense of the Company comprising Net Income or Net Loss of the Company for each Fiscal Year, determining special allocations of other items of income, gain, loss and expense, and adjusting the balance of each Members Capital Account to reflect the aforementioned general and special allocations. For each Fiscal Year, the special allocations in Section 6.3 shall be made immediately prior to the general allocations of Section 6.2 .
6.2 Certain Matters .
(a) Hypothetical Liquidation . Except as explicitly provided elsewhere herein, the items of income, gain, loss or deduction of the Company comprising Net Income or Net Loss for a Fiscal Year shall be allocated among the Persons who were Members during such Fiscal Year in a manner such that the Capital Account of each Member, immediately after making such allocation, is, as nearly as
13
possible, equal (proportionately) to (i) the distributions that would be made to such Member pursuant to Article XI if, on the last day of the Fiscal Year, the Company were dissolved, its affairs wound up and its assets sold for cash equal to their Gross Asset Values, all Company liabilities were satisfied (limited in the case of each Nonrecourse Liability to the Gross Asset Value of the assets securing such liability) and the net proceeds of the Company were distributed in accordance with Section 11.3(c)(ii) to the Members immediately after making such allocations, minus (ii) such Members share of Company Minimum Gain, Member Nonrecourse Debt Minimum Gain and the amount such Member would be obligated to contribute to the capital of the Company, all computed immediately prior to the hypothetical sale of the assets described in clause (i) above.
(b) Loss Limitation . Notwithstanding anything to the contrary in Section 6.2(a) but subject to the last sentence of this Section 6.2(b) , the amount of items of Company expense and loss allocated pursuant to Section 6.2(a) to any Member shall not exceed the maximum amount of such items that can be so allocated without causing such Member to have an Adjusted Capital Account Deficit at the end of any Fiscal Year, unless each Member would have an Adjusted Capital Account Deficit. All such items in excess of the limitation set forth in this Section 6.2(b) shall be allocated first, to Members who would not have an Adjusted Capital Account Deficit pro rata in proportion to their Capital Account balances, adjusted as provided in clauses (a) and (b) of the definition of Adjusted Capital Account Deficit, until no Member would be entitled to any further allocation, and thereafter to the Members in a manner determined in good faith by the Managing Member taking into account the relative economic interests of the Members of the Company.
6.3 Special Allocations . The following special allocations shall be made in the following order and immediately prior to the general allocations of Section 6.2(a) :
(a) Minimum Gain Chargeback . In the event that there is a net decrease during a Fiscal Year in either Company Minimum Gain or Member Nonrecourse Debt Minimum Gain, then notwithstanding any other provision of this Article VI , each Member shall receive such special allocations of items of Company income and gain as are required in order to conform to Regulations Section 1.704-2.
(b) Qualified Income Offset . Notwithstanding any other provision of this Article VI , items of income and gain shall be specially allocated to the Members in a manner that complies with the qualified income offset requirement of Regulations Section 1.704-1(b)(2)(ii)(d)(3), provided that any allocation under this Section 6.3(b) shall be made only if and to the extent that a Member would have a deficit Capital Account balance in excess of such sum after all allocations provided for in this Article VI have been tentatively made as if this Section 6.3(b) were not in this Agreement.
(c) Deficit Capital Accounts Generally . In the event that a Member has a deficit Capital Account balance at the end of any Fiscal Year which is in excess of the sum of (i) the amount such Member is then obligated to restore pursuant to this Agreement, and (ii) the amount such Member is then deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), respectively, such Member shall be specially allocated items of Company income and gain in an amount of such excess as quickly as possible, provided that any allocation under this Section 6.3(c) shall be made only if and to the extent that a Member would have a deficit Capital Account balance in excess of such sum after all allocations provided for in this Article VI have been tentatively made as if Section 6.3(b) and this Section 6.3(c) were not in this Agreement.
(d) Deductions Attributable to Member Nonrecourse Debt . Any item of Company loss or expense that is attributable to Member Nonrecourse Debt shall be specially allocated to the Members in the manner in which they share the economic risk of loss (as defined in Regulations Section 1.752-2) for such Member Nonrecourse Debt.
(e) Allocation of Nonrecourse Deductions . Each Nonrecourse Deduction of the Company shall be specially allocated to the Members in a manner determined in good faith by the Managing Member taking into account the relative economic interests of the Members of the Company.
14
(f) Section 754 Adjustments . To the extent an adjustment to the adjusted tax basis of any Company asset, pursuant to Section 734(b) or Section 743(b) of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with Regulations Section 1.704-1(b)(2)(iv)(m).
(g) Regulatory Allocations . The allocations set forth in Sections 6.3(a) to 6.3(f) (the Regulatory Allocations ) are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, the Regulatory Allocations will be offset with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 6.3 . Therefore, notwithstanding any other provision of this Article VI (other than the Regulatory Allocations), the Managing Member shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after the offsetting allocations are made, each Members Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Agreement and all Company items were allocated pursuant to Section 6.2(a) . In exercising its discretion pursuant to this Section 6.3(g) , the Managing Member shall take into account future Regulatory Allocations that, although not yet made, are likely to offset other Regulatory Allocations previously made.
6.4 Transfer of Interest . In the event of a transfer of all or part of an Interest (in accordance with the provisions of this Agreement) or the admission of an additional Member (in accordance with the provisions of this Agreement) the Companys taxable year shall close with respect to the transferring Member, and such Members distributive share of all items of profits, losses and any other items of income, gain, loss or deduction shall be determined using the interim closing of the books method under Section 706 of the Code and Regulations Section 1.706-1(c)(2)(i) unless the Managing Member determines that there would be no substantial difference between the results under closing of the books and a pro rata method as described in proposed Regulation Section 1.706-4(d). Except as otherwise provided in this Section 6.4 , in all other cases in which it is necessary to determine the profits, losses, or any other items allocable to any period, profits, losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Managing Member using any permissible method under Section 706 of the Code and the Regulations thereunder.
6.5 Tax Allocations .
(a) Section 704(b) Allocations .
(i) Except as provided in Section 6.5(b) below, each item of income, gain, loss, deduction or credit for U.S. federal income tax purposes that corresponds to an item of income, gain, loss or expense that is either taken into account in computing Net Income or Net Loss or is specially allocated pursuant to Section 6.3 (a Book Item ) shall be allocated among the Members in the same proportion as the corresponding Book Item.
(ii) (A) If the Company recognizes Depreciation Recapture in respect of the sale of any Company asset,
1. the portion of the gain on such sale which is allocated to a Member pursuant to Section 6.1 or Section 6.3 shall be treated as consisting of a portion of the Companys Depreciation Recapture on the sale and a portion of the balance of the Companys remaining gain on such sale under principles consistent with Regulations Section 1.1245-1, and
2. if, for U.S. federal income tax purposes, the Company recognizes both unrecaptured Section 1250 gain (as defined in Section 1(h) of the Code) and gain treated as ordinary income under Section 1250(a) of the Code in respect of such sale, the amount treated as Depreciation Recapture under Section 6.5(a)(ii)(2)(B) shall be comprised of a proportionate share of both such types of gain.
(B) For purposes of this Section 6.5(a)(ii) , Depreciation Recapture means the portion of any gain from the disposition of an asset of the Company which, for U.S. federal income tax purposes, (1) is treated as ordinary income under Section 1245 of the Code, (2) is treated as ordinary income under Section 1250 of the Code, or (3) is unrecaptured Section 1250 gain as such term is defined in Section 1(h) of the Code.
15
(b) Section 704(c) Allocations . In the event that any property of the Company is credited to the Capital Account of a Member at a value other than its tax basis (whether as a result of a contribution of such property or a revaluation of such property pursuant to clause (b) of the definition of Gross Asset Value ), then allocations of taxable income, gain, loss and deductions with respect to such property shall be made using any method provided for in Regulation Section 1.704-3.
(c) Credits . All tax credits shall be allocated among the Members as determined by the Managing Member in its reasonable discretion, consistent with applicable law.
(d) Capital Accounts . The tax allocations made pursuant to this Section 6.5 shall be solely for tax purposes and shall not affect any Members Capital Account or share of non-tax allocations or distributions under this Agreement.
ARTICLE VII
ACCOUNTING AND TAX MATTERS
7.1 Tax Returns . The Managing Member, at the expense of the Company, shall endeavor to cause the preparation and timely filing (including extensions) of all tax returns required to be filed by the Company pursuant to the Code as well as all other required tax returns in each jurisdiction in which the Company owns property or does business. Within ninety (90) days after the end of each Fiscal Year, the Managing Member will cause to be delivered to each Person who was a Member at any time during such Fiscal Year, information with respect to the Company as may be necessary for the preparation of such Persons Federal, state and local income tax returns for such Fiscal Year.
7.2 Tax Matters Member . The Managing Member shall have the power to make elections and prepare and file returns regarding any federal, state or local tax obligations of the Company, and to designate one of the Members to serve as the Tax Matters Member of the Company for purposes of Section 6231(a)(7) of the Code, with power to manage and represent the Company in any administrative proceeding of the Internal Revenue Service; provided, however , that the Tax Matters Member shall not make decisions in a manner that would adversely affect the Class A Members without the consent of such other Class A Members, which consent shall not be unreasonably withheld or delayed.
7.3 Accounting Methods; Elections; Information . The Managing Member shall determine the accounting methods and conventions to be used in the preparation of the Companys tax returns and shall make any and all elections under the tax laws of the United States (including under Section 754 of the Code) and any other relevant jurisdictions as to the treatment of items of income, gain, loss, deduction and credit of the Company, or any other method or procedure related to the preparation of the Companys tax returns.
7.4 Partnership Status . The Members intend, and the Company shall take no position inconsistent with, treating the Company as a partnership for United States federal, state and local income and franchise tax purposes.
16
ARTICLE VIII
TRANSFERS OF UNITS
8.1 Restrictions on Transfers of Units .
(a) The Class B Members may not Transfer any Class B Units except (i) in an Exempt Transfer, or (ii) with the prior written approval of the Managing Member, in each case, in accordance with the applicable terms of this Agreement. To the extent that any Class B Member Transfers any or all of its Class B Units pursuant to an Exempt Transfer, such Transferee shall have the same rights and restrictions with respect to such Class B Units as the Class B Member that Transferred such Units.
(b) No Transfer of any Units by any Member shall become effective unless and until the Transferee (unless such Transferee already is party to this Agreement) executes and delivers to the Company a counterpart to this Agreement, agreeing to be treated in the same manner as the transferring Member. Upon such Transfer and such execution and delivery, the Transferee acquiring Transferred Units shall be bound by, and entitled to the benefits of, this Agreement in the same manner as the transferring Member.
(c) In addition to any other restrictions on Transfer imposed by this Agreement, no Member may Transfer any Unit (i) if the Managing Member determines that the Company could, as a result of such Transfer, be treated as a publicly traded partnership within the meaning of Section 7704(b) of the Code and (ii) without first delivering to the Managing Member, if requested, an opinion of nationally recognized tax counsel or consultant (reasonably acceptable in form and substance to the Managing Member) that such Transfer will not cause the Company to be deemed a publicly traded partnership as such term is defined in Section 7704(b) of the Code or otherwise cease to be taxable as a partnership for federal income tax purposes.
(d) Any Member who effectively Transfers any Units pursuant to this Article VIII shall cease to be a Member with respect to such Units and shall no longer have any rights or privileges of a Member with respect to such Units (it being understood, however, that the applicable provisions of Section 4.2 shall continue to inure to such Persons benefit). Nothing contained herein shall relieve any Member who Transfers any Units from any liability or obligation of such Member to the Company or the other Members with respect to such Units that may exist on the date of such Transfer or that is otherwise specified in the Act and incorporated into this Agreement or for any liability to the Company or any other Person for any breaches of any representations, warranties or covenants by such Member (in its capacity as such) contained herein or in other agreements with the Company.
(e) Notwithstanding anything to the contrary herein, without the prior written approval of the Managing Member, no Management Member shall Transfer any Management Units to any Competitive Business (as defined below) or any direct or indirect Affiliate thereof. Competitive Business shall mean the business competitors of the Company.
8.2 Transfers in Violation of Agreement . Any Transfer or attempted Transfer of any Units in violation of any provision of this Agreement shall be void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Units as the owner of such Units for any purpose. Without limitation of any other provision herein, no Transfer of any interest in any Class B Unit by a Class B Member shall be effective unless prior to such Transfer the transferee, assignee or intended recipient of such interest shall have agreed in writing to be bound by the provisions of Section 3.4(b) , in form reasonably satisfactory to the Managing Member.
ARTICLE IX
INFORMATION RIGHTS, CONFIDENTIALITY AND ADDITIONAL AGREEMENTS
9.1 Information Rights . Members shall have the right to receive from the Company, upon request, a copy of the Certificate of Formation (and any amendment thereto) and of this Agreement, as amended from time to time, and such other information regarding the Company as is required by the Act or this Agreement.
9.2 Confidentiality . Each Member agrees that it will hold, and will use all commercially reasonable efforts to cause its officers, directors, members, managers, partners, employees, accountants,
17
counsel, consultants, advisors, financial sources, financial institutions, and agents (the Representatives ) to hold, in confidence all confidential information and documents regarding the Company and its Subsidiaries pursuant to or received by such Member or its Representatives in connection with this Agreement or any transaction contemplated hereby (except as required by applicable law, regulation or legal process, including any rule or regulation of a self-regulatory organization to which such Member or its Representatives are subject); provided, that each Member shall be entitled to disclose such confidential information and documents to its investors who are subject to confidentiality obligations owed to such Members.
ARTICLE X
AMENDMENT AND TERMINATION
10.1 Amendment or Modification; Waiver . This Agreement may be amended only with the written approval of the Managing Member and such amendment must be in writing; provided, however , that (a) an amendment or modification increasing any liability or obligation of a Member to the Company, or adversely affecting the limitation of the liability of a Member with respect to the Company, shall be effective only with that Members consent, and (b) any amendment that affects holders of Class B Interests as a class adversely and/or disproportionately from Class A Members as a class, shall require the consent of a Majority in Interest of holders of vested Class B Interests; provided , that, if at the applicable time, there are no holders of vested Class B Interests, such amendment shall require the consent of a Majority in Interest of all holders of unvested Class B Interests. The failure of any Member to insist upon strict performance of a covenant hereunder or of any obligation hereunder, irrespective of the length of time for which such failure continues, shall not be a waiver of such Members right to demand strict compliance herewith in the future. No consent or waiver, express or implied, to or of any breach or default in the performance of any obligation hereunder, shall constitute a consent or waiver to or of any other breach or default in the performance of the same or any other obligation hereunder.
10.2 Amendments by the Managing Member . The Managing Member, without the consent or approval at any time of any Member (each Member, by acquiring its Interests, being deemed to consent to any such amendment), may amend any provision of this Agreement or the Certificate of Formation, and may execute, swear to, acknowledge, deliver, file and record all documents required or desirable in connection therewith, to reflect:
(a) Qualification to do Business . A change that is necessary to qualify the Company as a limited liability company or a Company in which the Members have limited liability; and
(b) Changes Which are Inconsequential, Curative or Required . A change that is:
(i) Of an inconsequential nature and does not adversely affect any Member in any respect; or
(ii) Necessary to reflect the addition or removal of any Member or the current Capital Contributions and number or class of Units held by each Member on the Company Register, following any change to such items in accordance with the provisions of this Agreement.
10.3 Termination of Agreement . This Agreement will terminate in respect of all Members (a) with the written consent of the Company; or (b) upon the dissolution, liquidation or winding-up of the Company.
10.4 Termination as to a Party . Any Member who ceases to hold any Units shall cease to be a Member and, except as provided herein, shall have no further rights or obligations under this Agreement.
18
ARTICLE XI
DISSOLUTION; LIQUIDATION
11.1 Dissolution . The Company shall be dissolved and its affairs wound up on the first to occur of any of the following events:
(a) the written consent of all of the Class A Members;
(b) the decision to sell all or substantially all of the assets of the Company; or
(c) the entry of a decree of judicial dissolution under Section 18-802 of the Act.
The Company shall not dissolve or be terminated upon the death, retirement, resignation, expulsion, bankruptcy or dissolution of any Member other than the only Member of the Company, if the Company has only one Member remaining. The Managing Member shall promptly notify the Members of the dissolution of the Company.
11.2 Final Accounting . Upon the dissolution of the Company, a proper accounting shall be made from the date of the last previous accounting to the date of dissolution.
11.3 Liquidation .
(a) Dissolution of the Company shall be effective as of the date on which the event occurs giving rise to the dissolution and all Members shall be given prompt notice thereof in accordance with Section 13.7 , but the Company shall not terminate until the assets of the Company have been distributed as provided for in Section 11.3(c) . Notwithstanding the dissolution of the Company, prior to the termination of the Company, the business, assets and affairs of the Company shall continue to be governed by this Agreement.
(b) Upon the dissolution of the Company, the Managing Member, or, if there is no Managing Member, a Person selected by Class A Members holding 66 2/3% in Interest of the Class A Interests shall act as the liquidator (the Liquidator ) of the Company to wind up the Company. The Liquidator shall have full power and authority to sell, assign and encumber any or all of the Companys assets and to wind up and liquidate the affairs of the Company in an orderly and business-like manner. A reasonable amount of time shall be allowed for the orderly liquidation of assets of the Company and the discharge of liabilities to creditors so as to enable the Members to minimize the normal losses attendant upon a liquidation. The costs of dissolution and liquidation shall be an expense of the Company.
(c) The Liquidator shall distribute all proceeds from liquidation in the following order of priority:
(i) first, to creditors of the Company (including creditors who are Members) in satisfaction of the liabilities of the Company (whether by payment or the making of reasonable provision for payment thereof); and
(ii) second, to the Members in the same manner in which distributions are made pursuant to Article V , which distributions shall be deemed to be made pursuant to Article V .
The Liquidator shall determine whether any assets of the Company shall be liquidated through sale or shall be distributed in kind. A distribution in kind of an asset to a Member shall be considered, for the purposes of this Article XI , a distribution in an amount equal to the fair market value of the assets so distributed as determined by the Liquidator in its reasonable discretion. As promptly as possible after dissolution and again after final liquidation, the liquidating trustee shall cause an accounting by a firm of independent public accountants of the Companys assets, liabilities, operations and liquidating distributions to be given to the Members.
11.4 Cancellation of Certificate of Formation . Upon the completion of the distribution of Company assets as provided in Section 11.3 , the Company shall be terminated and the Person acting as Liquidator shall cause the cancellation of the Certificate of Formation and shall take such other actions as may be necessary or appropriate to terminate the Company, including filing the certificate of cancellation with the Secretary of State of the State of Delaware.
19
ARTICLE XII
EXCHANGE PROCEDURES
12.1 Exchanges of Units .
(a) Elective Exchanges of Units .
(i) Upon the terms and subject to the conditions of this Agreement, a Class B Member may effect an Exchange by (A) delivering to J. Alexanders and the Company an Exchange Notice and (B) surrendering (or in the absence of a surrender, be deemed to surrender) to the Company the Class B Units relating to such Exchange at the principal office of the Company, free and clear of all liens, encumbrances, rights of first refusal and the like, in consideration for, at the option of the Managing Member, with such consideration to be delivered as promptly as practicable following such delivery and surrender or deemed surrender (as applicable), but in any event within two (2) business days after the Date of Exchange specified in such Exchange Notice, (x) a cash payment by the Company in accordance with the instructions provided in the Exchange Notice in an amount equal to the Class B Unit Exchange Price for each Class B Unit subject to such Exchange, in which event such exchanged Units shall automatically be deemed cancelled concurrently with such payment, without any action on the part of any Person, including J. Alexanders or the Company, or (y) the issuance by J. Alexanders to such Class B Member of a number of shares of Common Stock equal to the quotient obtained by dividing (A) the product of the Class B Unit Exchange Price for such Units multiplied by the number of Class B Units subject to such Exchange, by (B) the VWAP Price as of the date of the delivery of the Exchange Notice. Notwithstanding the foregoing or any other provision of this Agreement, an Exchange of Class B Units by the Management Company or any transferee thereof may only be effected for shares of Common Stock pursuant to clause (y) above. If J. Alexanders elects or is required (in the case of the Management Company) to issue Common Stock in an Exchange, J. Alexanders shall (A) deliver or cause to be delivered at the offices of the then-acting registrar and transfer agent of the Common Stock the number of shares of Common Stock deliverable upon such Exchange, registered in the name of such Class B Member (or in such other name as is requested in writing by such Class B Member), in certificated form, as may be requested in writing by such Class B Member or, (B) if the Common Stock is settled through the facilities of The Depository Trust Company, upon the written instruction of such Class B Member set forth in the Exchange Notice, deliver to such Class B Member through the facilities of The Depository Trust Company, to the account of the participant of The Depository Trust Company designated by such Class B Member in the Exchange Notice.
(ii) An Exchange pursuant to Section 12.1(a) of Units for Common Stock will be deemed to have been effected immediately prior to the close of business on the Date of Exchange, and the Class B Member effecting such Exchange will be treated as a holder of record of Common Stock as of the close of business on such date.
(b) Expenses . J. Alexanders, the Company and the Class B Member effecting an Exchange Member shall each bear its own expenses in connection with any Exchange, whether or not any such Exchange is ultimately consummated. For the avoidance of doubt, (i) neither J. Alexanders nor the Company shall bear any transfer taxes, stamp taxes or duties, or other similar taxes in connection with, or arising by reason of, any Exchange, and (ii) the Class B Member effecting an Exchange shall bear any and all income or gains taxes imposed on gain realized by it as a result of any such Exchange.
20
12.2 Common Stock to be Issued .
(a) In connection with any Exchange, J. Alexanders shall have the right to provide shares of Common Stock that are registered pursuant to the Securities Act, unregistered shares of Common Stock or any combination thereof, as it may determine in its sole discretion.
(b) J. Alexanders shall at all times reserve and keep available out of its authorized but unissued Common Stock, solely for the purpose of issuances upon any Exchange, such number of shares of Common Stock as shall from time to time be sufficient to effect the Exchange of all Class B Units that may be outstanding from time to time. J. Alexanders shall take any and all actions necessary or desirable to give effect to the foregoing. If the shares of Common Stock required to be reserved pursuant to the foregoing sentence require listing on any national securities exchange, J. Alexanders shall, at its expense, use its commercially reasonable efforts to cause such shares to be listed or duly approved for listing on the same exchange on which the Common Stock shall otherwise be listed.
(c) J. Alexanders shall use its reasonable best efforts to timely file all reports and other documents required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations promulgated by the Securities and Exchange Commission thereunder to enable a holder of shares of Common Stock received upon an Exchange to sell such shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 or Regulation S under the Securities Act. Upon the written request of a Class B Member, J. Alexanders shall deliver to such holder a written statement that it has complied with such requirements.
(d) Any Common Stock to be issued by J. Alexanders in accordance with this Agreement shall be validly issued, fully paid and non-assessable.
ARTICLE XIII
MISCELLANEOUS
13.1 Certain Defined Terms . As used in this Agreement, the following terms shall have the meanings set forth or as referenced below.
Act has the meaning given such term in the definition of Certificate of Formation.
Adjusted Capital Account Deficit means, with respect to any Member, the deficit balance, if any, in such Members Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments:
(a) credit to such Capital Account any amounts that such Member is obligated to restore pursuant to any provision of this Agreement or is deemed obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) debit to such Capital Account the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Affiliate of any particular Person means any other Person Controlling, Controlled by or under common Control with such particular Person or, in the case of a natural Person, any other member of such Persons Family Group.
Agreement has the meaning given such term in the Preamble.
Award Agreement means each award agreement pursuant to which Class B Units have been issued and granted to a Management Member or the Management Company, as applicable.
21
Book Item has the meaning given such term in Section 6.5(a)(i) .
Capital Account has the meaning given such term in Section 3.10 .
Calculation Date means the date selected by the Company as of which the Fair Market Value of a Termination Security is determined, which date shall be (a) not more than thirty (30) days before the closing date of the purchase of the Termination Security and (b) at least six (6) months and one (1) day after the date the Termination Security became vested (unless the Company determines that such six (6) month delay is not necessary for the award pursuant to which such Class B Units were made to be classified as an equity award under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation (or any applicable successor standards) with respect to any Termination Security the valuation on the date that is 181 days following the Termination Date with respect to such Terminated Employee.
Capital Contribution means, with respect to any Member, the amount of cash and the initial Gross Asset Value of any property (other than cash) contributed to the Company by such Member at such time with respect to the Interests held by such Member reduced by the amount of any liability of such Member assumed by the Company or the amount of any liability to which any property contributed by such Member is subject; Capital Contributions means, with respect to any Member, the aggregate amount of cash and the aggregate value of any property (other than cash) as determined by reference to the initial Gross Asset Value of such property contributed to the Company by such Member (or its predecessors in interest) with respect to the Interests held by such Member reduced by the amount of any liability of such Member assumed by the Company or the amount of any liability to which any property contributed by such Member is subject.
Cause , with respect to any Management Member, has the meaning for such term (or an analogous term) set forth in the applicable employment agreement (or similar agreement) of such Person, and in the absence of such definition, means (i) such Persons indictment, pleading of nolo contendere or conviction of a felony or a crime involving embezzlement, conversion of property or moral turpitude, (ii) a final non-appealable finding of such Persons breach of any applicable fiduciary duties to the Company or its members, (iii) such Persons willful and continual neglect to discharge his or her duties, responsibilities or obligations under any agreement between the such Person and the Company, (iv) such Persons habitual drunkenness or substance abuse which materially interferes with such Persons ability to discharge his or her duties, responsibilities and obligations under any agreement between such Person and the Company, provided that such Person has been given notice and thirty (30) days from such notice fails to cure such drunkenness or abuse, (v) the material breach by such Person of any agreement between such Person and the Company, provided , that such Person has been given notice and fails to cure such breach within thirty (30) days from such notice, (vi) commission of fraud, embezzlement or misappropriation of funds against the Company or (vii) gross negligence or willful misconduct in the performance of duties that causes a material harm to the Company.
Certificate of Formation means the Certificate of Formation of the Company as filed with the Secretary of State of the State of Delaware on February 6, 2013 pursuant to the Delaware Limited Liability Company Act (6 Del . C . Section 18-101, et seq. , as amended and in effect from time to time) (the Act ), as it may be amended or restated from time to time.
Class A Interest means the limited liability company interest represented by the Class A Units owned by a Class A Member in the Company at any particular time, including the right of such Class A Member to any and all benefits to which such Class A Member may be entitled as provided in the Act, this Agreement, or otherwise, together with the obligations of such Class A Member to comply with all terms and provisions of this Agreement and the Act.
Class A Member means each Person admitted to the Company as a Class A Member whose name is set forth on Schedule I hereto as a Class A Member with respect to Class A Units held by such Person, and any other Person admitted as an additional or substitute Class A Member, so long as such Person remains a Class A Member.
22
Class A Units has the meaning given such term in Section 3.3(a)(i) .
Class B Interest means the limited liability company interest represented by the Class B Units owned by a Class B Members in the Company at any particular time, including the right of such Class B Members to any and all benefits to which such Class B Member may be entitled as provided in the Act, this Agreement, or otherwise, together with the obligations of such Class B Member to comply with all terms and provisions of this Agreement and the Act.
Class B Member means each Person admitted to the Company as a Class B Member whose name is set forth on Schedule I hereto as a Class B Member with respect to Class B Units held by such Person, and any other Person admitted as an additional or substitute Class B Member, so long as such Person remains a Class B Member.
Class B Unit Exchange Price means, for each vested Class B Unit, the aggregate amount that would be distributed with respect to such vested Class B Unit in accordance with Section 5.2 (assuming for this purpose that all unvested Units are vested) if the aggregate amount to be distributed to all Members pursuant to Section 5.2 were equal to the sum of (i) the implied valuation of J. Alexanders, as calculated by reference to J. Alexanders Market Capitalization, plus (ii) the Fair Market Value of any liabilities directly owed by J. Alexanders, minus (iii) the Fair Market Value of any assets directly held by J. Alexanders (in each of clauses (ii) and (iii), to the extent such assets and/or liabilities are not assets or liabilities of the Company or any of its Subsidiaries).
Class B Units has the meaning given such term in Section 3.3(a)(ii) .
Code means the Internal Revenue Code of 1986, as amended.
Combination means any combination of stock, by reverse split, reclassification, recapitalization or otherwise.
Common Stock means the Common Stock, par value $0.001 per share, of J. Alexanders.
Company has the meaning given such term in the Preamble.
Company Business has the meaning given such term in Section 2.5(a) .
Company Incentive Plan means the 2015 Management Incentive Plan of the Company, in the form attached hereto as Exhibit B , as the same may be amended, restated, modified or supplemented from time to time.
Company Minimum Gain has the meaning given such term in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
Company Register has the meaning given such term in Section 3.1 .
Control (including, with correlative meaning, all conjugations thereof) means with respect to any Person, the ability of another Person to control or direct the actions or policies of such first Person, whether by ownership of voting Units, by contract or otherwise.
Costs has the meaning set forth in Section 4.2(a) .
Date of Exchange means with respect to an Exchange pursuant to Article XII , the date identified in the respective Exchange Notice.
Depreciation means, for each fiscal year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such fiscal year, except that if the
23
Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such fiscal year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such fiscal year bears to such beginning adjusted basis; provided , however , that if the adjusted basis for federal income tax purposes of an asset at the beginning of such fiscal year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Managing Member.
Depreciation Recapture has the meaning given such term in Section 6.5(a)(ii)(B).
Employed has the meaning given such term in Section 3.6(a)(i) .
Employment has the meaning given such term in Section 3.6(a)(i) .
Exchange means an exchange of Class B Units for cash or shares of Common Stock pursuant to the terms, and subject to the conditions, of Section 12.1(a) .
Exchange Act means the Securities Exchange Act of 1934 and the rules and regulation promulgated thereunder, all as the same have been or may be amended from time to time.
Exchange Notice means a written election of Exchange substantially in the form of Exhibit B attached hereto, duly executed by the exchanging Member.
Exempt Transfer means a Transfer of Units (a) with respect to any Member who is a natural person, to a member of such Members immediate family, which shall include such Members spouse, children or grandchildren, or a trust, corporation, partnership or limited liability company all of the beneficial interests of which shall be held by such Member or one or more members of such Members immediate family, and shall include such Members heirs, successors, administrators and executors; (b) with respect to any Member that is an entity, (i) to any Affiliate of such Member (but only as long as such entity remains an Affiliate of such Member) and (ii) to any of such Members shareholders, members, partners or other equity holders to which such Member Transfers all of such Members Units; and (c) to the Managing Member; provided , that, in each case any transferee in an Exempt Transfer shall have (if not already a party to this Agreement) agreed in writing, in form and substance satisfactory to the Managing Member, to become a party to, and be bound by, all of the terms of this Agreement (in the absence of which such transfer shall be deemed not to be an Exempt Transfer).
Fair Market Value means the fair market value reasonably determined by the Managing Member.
Fiscal Year has the meaning given such term in Section 2.7 .
Family Group means, with respect to any individual, such individuals spouse and descendants (whether natural or adopted) and any trust, partnership, limited liability company or similar vehicle established and maintained solely for the benefit of (or the sole members or partners of which are) such individual, such individuals spouse and/or such individuals descendants.
Gross Asset Value means, with respect to any asset, the assets adjusted basis for U.S. federal income tax purposes, except as follows:
(a) the Gross Asset Value of any asset (other than a promissory note described in Treasury Regulation Section 1.704-1(b)(iv)(d)(2)) contributed by a Member to the Company is the gross fair market value of such asset as reasonably determined by the contributing Member and the Managing Member at the time of contribution;
24
(b) the Gross Asset Value of all Company assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the Managing Member, as of the following times: (i) the acquisition of any additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of property as consideration for an interest in the Company; (iii) the grant of an interest in the Company (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Company by an existing Member acting in its capacity as a Member, or by a new Member acting in its capacity as a Member or in anticipation of becoming a Member; and (iv) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided , however , that the adjustments pursuant to clauses (i) , (ii) and (iii) above shall be made only if the Managing Member reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company;
(c) the Gross Asset Value of any Company asset distributed to any Member shall be adjusted to equal the gross fair market value of such asset on the date of distribution as reasonably determined by the Managing Member; and
(d) the Gross Asset Values of all Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Section 734(b) or Section 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and clause (f) of the definition of Net Income and Net Loss or Section 6.3(f) ; provided , however , that such Gross Asset Values shall not be adjusted pursuant to this clause (d) to the extent the Managing Member reasonably determines that an adjustment pursuant to clause (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph.
If the Gross Asset Value of a Company asset has been determined or adjusted pursuant to clause (a), (b) or (d) above, such Gross Asset Value shall thereafter be adjusted by Depreciation taken into account with respect to such asset for purposes of computing Net Income or Net Loss.
Hurdle Amount means, in respect of a Class B Unit, a specified amount, which shall be (i) with respect to the Class B Units issued as of the date hereof (if any), the amount set forth on Schedule I hereto, and (ii) with respect to each subsequent issuance of Class B Units, the amount determined by the Managing Member at the time of such subsequent issuance and set forth both in an Award Agreement and on Schedule I hereto. To the extent necessary, the Hurdle Amount for each outstanding Class B Unit shall be increased by the aggregate amount of all Capital Contributions made to the Company subsequent to the issuance of such Class B Unit so as to maintain the treatment of such Class B Units as Profits Interests.
Hypothetical Liquidation means as of any date, a hypothetical liquidation of the Company as of such date, assuming (i) that a sale of all the assets of the Company occurs at prices equal to their respective fair market values (as reasonably determined by the Managing Member), (ii) the net proceeds of such sale are distributed to the Members pursuant to Section 5.2 , and after payment of all actual Company indebtedness, and any other liabilities related to the Companys assets, limited, in the case of the hypothetical payment of non-recourse liabilities, to the collateral securing or otherwise available to satisfy such liabilities.
Interests means the Class A Interests and the Management Interests.
J. Alexanders has the meaning given such term in the Preamble.
J. Alexanders Market Capitalization means, as of a Date of Exchange, an amount equal to the product of (x) the number of shares of Common Stock actually outstanding on such date and (y) the VWAP Price.
25
Liquidator has the meaning given such term in Section 11.3(b) .
Majority in Interest means, with respect to Units of a particular class, vested Units of such class representing more than 50% of the aggregate number of vested Units of such class.
Management Agreement means that certain Management Consulting Agreement between the Company and the Management Company, dated as of the date hereof.
Management Company has the meaning given such term in the Preamble.
Management Member has the meaning given such term in the Preamble.
Management Units means the Class B Units held by the Management Members.
Management Units Transferee has the meaning given such term in Section 3.6(a)(i) .
Managing Member means J. Alexanders, in its capacity as the sole manager of the Company in accordance with Section 18-402 of the Act.
Member Loan has the meaning given such term in Section 13.14 .
Member Nonrecourse Debt has the meaning given such term in Regulations Section 1.704-2(b)(4) for partner nonrecourse debt.
Member Nonrecourse Debt Minimum Gain means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if the Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).
Member and Members have the meaning given such terms in the Preamble.
Net Income and Net Loss means, for each Fiscal Year or other period, an amount equal to the Companys taxable income or loss for such Fiscal Year or other period, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss) with the following adjustments (without duplication):
(a) any income of the Company that is exempt from U.S. federal income tax and not otherwise taken into account in computing Net Income or Net Loss pursuant to this paragraph, shall be added to such income or loss;
(b) any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income or Net Loss, shall be subtracted from such taxable income or loss;
(c) in the event the Gross Asset Value of any Company asset is adjusted pursuant to clauses (b) or (c) of the definition of Gross Asset Value , the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss;
(d) gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for U.S. federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;
26
(e) in lieu of depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed based on the Gross Asset Value of the property;
(f) to the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) or Section 743(b) of the Code is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) to be taken into account in determining Capital Accounts, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and
(g) any items which are specially allocated pursuant to the provisions of Section 6.3 shall not be taken into account in computing Net Income or Net Loss.
Nonrecourse Deductions has the meaning given such term in Regulations Sections 1.704-2(b)(1) and 1.704-2(c).
Nonrecourse Liability has the meaning given such term in Regulations Section 1.704-2(b)(3).
Person means an individual, a partnership, a joint venture, a corporation, an association, a joint stock company, a limited liability company, a trust, an unincorporated organization or a government or any department or agency or political subdivision thereof.
Prime Rate means the highest U.S. prime rate of interest published by The Wall Street Journal as the base rate on corporate loans at large money center commercial banks.
Prior Agreement has the meaning given such term in the Recitals.
Profits Interest has the meaning given such term in Section 3.4(b) .
Proposed Rules has the meaning given such term in Section 3.4(c)(i) .
Regular Distributions means all distributions other than Tax Distributions.
Regulations means the Income Tax Regulations promulgated under the Code, as amended.
Regulatory Allocations has the meaning given such term in Section 6.3(g) .
Representatives has the meaning given such term in Section 9.2 .
Reserves means the amount of proceeds that the Managing Member determines in good faith and in its reasonable discretion is necessary to be maintained by the Company for the purpose of paying reasonably anticipated expenses, liabilities and obligations of the Company regardless of whether such expenses, liabilities and obligations are actual or contingent.
Safe Harbor Election has the meaning given such term in Section 3.4(b)(i) .
Securities means securities of every kind and nature, including stock, notes, bonds, evidences of indebtedness, options to acquire any of the foregoing, and other business interests of every type, including interests in any Person.
Securities Act means the Securities Act of 1933, as amended.
Subdivision means any subdivision of stock, by any split, dividend, reclassification, recapitalization or otherwise.
27
Subsidiary means, with respect to any specified Person, any other Person in which such specified Person, directly or indirectly through one or more Affiliates or otherwise, beneficially owns at least fifty percent (50%) of either the ownership interest (determined by equity or economic interests) in, or the voting control of, such other Person.
Tax Distribution means a distribution under Section 5.3 .
Tax Matters Member has the meaning given such term in Section 7.2 .
Tax Rate means the highest combined marginal U.S. federal, state and local tax rate (including for the avoidance of doubt the net investment income tax imposed by Code Section 1411 and corresponding provisions of state and local law) for an individual residing in New York City, New York.
Terminated Employee has the meaning given such term in Section 3.6(a)(i) .
Termination Date has the meaning given such term in Section 3.6(a)(i) .
Termination Event has the meaning given such term in Section 3.6(a)(i) .
Termination Securities has the meaning given such term in Section 3.6(a)(i) .
Trading Day means a day on which (i) the Common Stock at the close of regular way trading (not including extended or after hours trading) is not suspended from trading on any national securities exchange or association or over-the-counter market that is the primary market for trading the Common Stock at the close of business, (ii) the Common Stock has traded at least once regular way on the national securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock, and (iii) there has been no market disruption event. For purposes of this definition, market disruption event means the occurrence or existence for more than one half-hour period in the aggregate on any scheduled trading day for the Common Stock of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the stock exchange or otherwise) in the Common Stock, and such suspension or limitation occurs or exists at any time before 1:00 p.m., New York City time.
Transfer means (in either the noun or the verb form, including with respect to the verb form, all conjugations thereof within their correlative meanings) with respect to any security, the gift, sale, assignment, transfer, pledge, hypothecation or other disposition (whether for or without consideration, whether directly or indirectly, and whether voluntary, involuntary or by operation of law) of such security or any interest therein; provided , however , that transfers of all or any portion of stock, partnership interests (general or limited), membership interests or other similar securities or any securities convertible into or exercisable or exchangeable therefor in J. Alexanders shall not constitute a Transfer.
Transferee means any Person to whom a Member may Transfer Units.
Transferor means the transferor in a Transfer.
Units means the Class A Units, the Class B Units and any other class or series of authorized units of the Company.
Unreturned Capital Contributions means, with respect to each Class A Member, at any time of determination, the aggregate amount of such Class A Members Capital Contributions less the amount of distributions received by such Class A Member (or its predecessors in interest) under Section 5.2(a) .
VWAP means the daily per share volume-weighted average price of the Common Stock as displayed under the heading Bloomberg VWAP on the Bloomberg page designated for the Common Stock (or its equivalent successor if such page is not available) in respect of the period from the open of
28
trading on such day until the close of trading on such day (or if such volume-weighted average price is unavailable, (x) the per share volume-weighted average price of such Common Stock on such day (determined without regard to afterhours trading or any other trading outside the regular trading session or trading hours), or (y) if such determination is not feasible, the market price per share of Common Stock, in either case as determined by a nationally recognized independent investment banking firm retained for this purpose by J. Alexanders).
VWAP Price means, as of any date, the average of the daily VWAP of a share of Common Stock for the fifteen (15) Trading Days immediately prior to such date; provided that in calculating such average (i) the VWAP for any Trading Day during the fifteen (15) Trading Day period prior to the date of any extraordinary distributions made on the Common Stock during the fifteen (15) Trading Day period shall be reduced by the value of such distribution per share of Common Stock, and (ii) the VWAP for any Trading Day during the fifteen (15) Trading Day period prior to the date of a Subdivision or Combination of Common Stock during the fifteen (15) Trading Day period shall automatically be adjusted in inverse proportion to such Subdivision or Combination.
13.2 Severability . Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
13.3 Entire Agreement . Except as otherwise expressly set forth herein, this document (including the Company Incentive Plan and the other exhibits and schedules hereto), together with any applicable terms of any Award Agreement between a Class B Member, on the one hand, and the Company, on the other hand, embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.
13.4 Successors and Assigns . Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Members and any subsequent holders of Units and the respective successors and assigns of each of them, so long as they hold Units.
13.5 Counterparts . This Agreement may be executed in any number of counterparts with the same effect as if all parties had signed the same document, and all counterparts shall be construed together and shall constitute the same instrument.
13.6 Remedies . The Company and the Members shall be entitled to enforce their rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement (including costs of enforcement) and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that the Company or any Member may in its, his or her sole discretion apply to any court of law or equity of competent jurisdiction for specific performance or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement.
13.7 Notices . Except as expressly set forth to the contrary in this Agreement, all notices, requests, or consents required or permitted to be given under this Agreement must be in writing and shall be deemed to have been given: (a) three (3) days after the date mailed by registered or certified mail, addressed to the recipient, with return receipt requested, (b) upon delivery to the recipient in person or by courier, or (c) upon receipt of a facsimile transmission by the recipient. Such notices, requests and consents shall be given (i) to Members at their addresses or fax numbers set forth on Schedule I attached hereto, or such other address or fax numbers as a Member may specify by written notice to the
29
Company, the Managing Member and all of the other Members, or (ii) to the Company or the Managing Member at the address specified in this Section 13.7, or at such other location as the Company shall have specified in writing to the Members as its principal office. Whenever any notice is required to be given by law, the Certificate of Formation or this Agreement, a written waiver thereof, signed by the Person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Notices to the Company will be sent to:
J. Alexanders Holdings, LLC
3401 West End Avenue, Suite 260
Nashville, Tennessee 37203 Attention: Chief Financial Officer
Facsimile: (615)-269-1999
with copies (which shall not constitute notice) to:
J. Alexanders Holdings, Inc.
3401 West End Avenue, Suite 260
Nashville, Tennessee 37203
Attention: Chief Financial Officer
Facsimile: (615)-269-1999
Notices to any Member will be sent to the address set forth opposite such Members name on Schedule I attached hereto.
13.8 Governing Law . The Act shall govern all questions arising under this Agreement concerning the relative rights of the Company and its Members. All other questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The parties hereto hereby irrevocably and unconditionally submit to the exclusive jurisdiction of any State or Federal court sitting in Nashville, TN over any suit, action or proceeding arising out of or relating to this Agreement. The parties hereby agree that service of any process, summons, notice or document by U.S. registered mail addressed to any such party shall be effective service of process for any action, suit or proceeding brought against a party in any such court. The parties hereto hereby irrevocably and unconditionally waive any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. The parties hereto agree that a final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon any party and may be enforced in any other courts to whose jurisdiction any party is or may be subject, by suit upon such judgment.
13.9 Interpretation . Any references to an agreement or organizational document herein shall mean such agreement or organizational document, as may be amended, modified and/or supplemented (and/or as any provision thereunder may be waived) from time to time in accordance with its terms.
13.10 Descriptive Headings . The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
13.11 Business Opportunities . Except to the extent otherwise agreed between any Member, on the one hand, and the Company or any of its Affiliates, on the other hand, any Member and any Affiliate of such Member may engage in or possess an interest in other investments, business ventures or entities of any nature or description, independently or with others, similar or dissimilar to, or that compete with, the investments or business of the Company, and may provide advice and other assistance to any such investment, business venture or entity, and the Company and the Members shall have no rights by virtue of this Agreement in and to such investments, business ventures or entities or the income or profits derived therefrom, and the pursuit of any such investment or venture, even if competitive with the business of the Company, shall not be deemed wrongful or improper. No Member nor any Affiliate thereof (other than an employee of the Company or a Subsidiary of the Company) shall be obligated to present
30
any particular investment or business opportunity to the Company even if such opportunity is of a character that, if presented to the Company, could be taken by the Company, and any Member or any Affiliate thereof (other than an employee of the Company or a Subsidiary of the Company) shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment opportunity.
13.12 Transactions with Interested Persons; Standards of Conduct . Unless entered into in bad faith, no contract or transaction between the Company and one or more of its Members, or between the Company and any other corporation, partnership, association or other organization in which one or more of its Members or their Affiliates, have a financial interest or are shareholders, members, directors, partners, directors or officers, shall be voidable solely for this reason or solely because said Member or their Affiliates were present or participated in the authorization of such contract or transaction if (a) the material facts as to the relationship or interest of such Member or their Affiliates and as to the contract or transaction were disclosed or known to the Managing Member, and (b) the contract or transaction was authorized and approved by the Managing Member and any other Members required in accordance with the provisions of this Agreement, and, if such conditions have been satisfied, no Member or their Affiliates interested in such contract or transaction, because of such interest, shall be considered to be in breach of this Agreement or liable to the Company, any Member or their Affiliates, or any other Person or organization for any loss or expense incurred by reason of such contract or transaction or shall be accountable for any gain or profit realized from such contract or transaction; provided, however , that the Managing Member shall approve any such contract or transaction contemplated by this Section 13.12 only if it has reasonably determined in good faith that such contract or transaction is on terms that are fair and reasonable and no less favorable to the Company than the Managing Member would expect to obtain in a comparable arms-length transaction with a Person which is not an Affiliate.
13.13 Appointment of Managing Member as Attorney-in-Fact . Each Member hereby irrevocably constitutes, appoints and empowers the Managing Member and its duly authorized officers, managers, agents, successors and assignees, with full power of substitution and resubstitution, as its true and lawful attorneys-in-fact, in its name, place and stead and for its use and benefit, to execute, certify, acknowledge, file, record and swear to all instruments, agreements and documents necessary or advisable to carrying out the following:
(a) any and all amendments to this Agreement that may be permitted or required by this Agreement or the Act, including amendments required to effect the admission of a Member pursuant to and as permitted by this Agreement or to revoke any admission of a Member which is prohibited by this Agreement;
(b) any certificate of cancellation of the Certificate of Formation that may be necessary upon the termination of the Company;
(c) any business certificate, certificate of formation, amendment thereto, or other instrument or document of any kind necessary to accomplish the Company Business;
(d) all conveyances and other instruments or documents that the Managing Member deems appropriate or necessary to effectuate or reflect the dissolution, termination and liquidation of the Company pursuant to the terms of this Agreement;
(e) all conveyances and other instruments or documents that the Managing Member deems appropriate or necessary to effectuate or reflect the conversion, contribution or other actions contemplated by this Agreement; and
(f) all other instruments that may be required or permitted by law to be filed on behalf of the Company and that are not inconsistent with this Agreement. The Managing Member shall not take action as attorney-in-fact for any Member which would in any way increase the liability of the Member beyond the liability expressly set forth in this Agreement or which would diminish the substantive rights of such Member.
31
13.14 Limited Authorization of Managing Member . Each Member authorizes such attorneys-in-fact to take any further action which such attorneys-in-fact shall consider necessary or advisable in connection with any of the foregoing, hereby giving such attorneys-in-fact full power and authority to do and perform each and every act or thing whatsoever necessary or advisable to be done in and about the foregoing as fully as such Member might or could do if personally present, and hereby ratifying and confirming all that such attorneys-in-fact shall lawfully do or cause to be done by virtue hereof. The appointment by each such Member of the Managing Member and its duly authorized officers, agents, successors and assigns with full power of substitution and resubstitution, as aforesaid, as attorneys-in-fact shall be deemed to be a power coupled with an interest in recognition of the fact that each of the Members under this Agreement shall be relying upon the power of the Managing Member and such officers, managers, agents, successors and assigns to act as contemplated by this Agreement in such filing and other action by it on behalf of the Company. The foregoing power of attorney shall survive the assignment by any Member of the whole or any part of its Interest hereunder. The foregoing power of attorney may be exercised by such attorneys-in-fact by listing all of such Members executing any agreement, certificate, instrument or document with the signatures of such attorneys-in-fact acting as attorneys-in-fact for all of them.
13.15 Loans to the Company . Subject to the terms of this Agreement, the Company may borrow from Members to finance its working capital (a Member Loan) on commercially reasonable terms; provided, that any Member Loan shall carry interest at the prime interest rate in effect at the time of the Member Loan (as reported by Bank of America, N.A. or any successor thereto), non-compounding, and shall have no prepayment penalty or premium; provided, further, that the Company shall only borrow the amount that is necessary for its reasonable working capital needs and shall pay off any such Member Loan as soon as cash becomes available to the Company.
13.16 No Third Party Beneficiaries . It is understood and agreed among the parties that this Agreement and the covenants made herein are made expressly and solely for the benefit of the parties hereto, and that no other Person, other than an indemnified Person pursuant to Section 4.1(a) shall be entitled or be deemed to be entitled to any benefits or rights hereunder, nor be authorized or entitled to enforce any rights, claims or remedies hereunder or by reason hereof. Notwithstanding any contrary provision of this Agreement, no such creditor or Person shall obtain any rights under this Agreement or shall, by reason of this Agreement, be permitted to make any claim against the Company or any Member or Managing Member.
13.17 Further Assurances . In connection with this Agreement and the transactions contemplated hereby, each Member shall execute and deliver any additional documents and instruments and perform any additional acts that may be necessary or appropriate to effectuate and perform the provisions of this Agreement and those transactions, as requested by the Managing Member.
13.18 Construction . Definitions in this Agreement shall be equally applicable to both the singular and plural forms of the terms defined, and references to the masculine, feminine or neuter gender shall include each other gender. Where used herein, the term Federal shall refer to the U.S. Federal government. As used herein, (a) or shall mean and/or and (b) including or include shall mean including without limitation. It is the intention of the parties that every covenant, term, and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any party (notwithstanding any rule of law requiring an Agreement to be strictly construed against the drafting party), it being understood that the parties to this Agreement are sophisticated and have had adequate opportunity and means to retain counsel to represent their interests and to otherwise negotiate the provisions of this Agreement.
13.19 Waiver of Action for Partition . Each of the Members irrevocably waives during the term of the Company any right that such Member may have to maintain an action for partition with respect to the property of the Company.
13.20 Relations with Members . Unless named in this Agreement as a Member, or unless admitted to the Company as a Member as provided in this Agreement, no Person shall be considered a
32
Member. Subject to Article VIII, the Company and the Managing Member owe duties only to the Company and its Members and the provisions of this Agreement applicable to Members (other than Section 4.1(a) which is enforceable by the Persons specified therein) are only enforceable by Persons so named or admitted as Members.
13.21 Accounting Considerations . Notwithstanding anything contained herein or in any Award Agreement to the contrary, the sale or other disposition (whether pursuant to a call right, put right or otherwise) of Class B Units shall be delayed (and the terms upon which such sale or disposition occurs shall be modified) to the extent the Company determines that such delay or modification is necessary for the award pursuant to which such Class B Units were made to be classified as an equity award under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation (or any applicable successor standards).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
33
IN WITNESS WHEREOF , the parties hereto have executed this Second Amended and Restated Limited Liability Company Agreement on the day and year first above written.
THE COMPANY : | ||
J. ALEXANDERS HOLDINGS, LLC | ||
By: |
|
|
Name: | ||
Title: | ||
CLASS A MEMBERS : | ||
J. ALEXANDERS HOLDINGS, INC. | ||
By: |
|
|
Name: | ||
Title: | ||
JAX Investments | ||
By: |
|
|
Name: | ||
Title: | ||
CLASS B MEMBERS : | ||
BLACK KNIGHT ADVISORY SERVICES, LLC | ||
By: |
|
|
Name: | ||
Title: | ||
Lonnie J. Stout II | ||
J. Michael Moore | ||
Mark Parkey | ||
Goodloe Partee | ||
Ralph Carnevale | ||
Chris Conlon | ||
Jessica H. Root |
[Signature Page to Second Amended and Restated LLC Agreement of J. Alexanders holdings, LLC]
Robert Miles | ||
Jim Filaroski | ||
Ian Dodson | ||
Shannon Hall | ||
Jason Parks | ||
Tim Landrey | ||
Derek Gordon |
[Signature Page to Second Amended and Restated LLC Agreement of J. Alexanders holdings, LLC]
SCHEDULE I
LIST OF MEMBERS
Name of Member |
Address |
Units |
Capital
Account |
Hurdle Amount | ||||||||||
Class A Members: |
||||||||||||||
J. Alexanders Holdings, Inc. |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
15,770,700 | $ | [ | ] | N/A | ||||||||
JAX Investments |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
159,300 | $ | [ | ] | N/A | ||||||||
Class B Members: |
||||||||||||||
Black Knight Advisory Services, LLC |
601 Riverside Avenue Jacksonville, FL 32204 |
1,868,333 | $ | 0.00 | $ | [ | ] | |||||||
Lonnie J. Stout II |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
442,500 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
J. Michael Moore |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
132,750 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
Mark Parkey |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
132,750 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
Goodloe Partee |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
22,125 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
Ralph Carnevale |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
22,125 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
Chris Conlon |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
22,125 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
Jessica Hagler |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
22,125 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
Robert Miles |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
17,700 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
Jim Filaroski |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
13,275 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
Ian Dodson |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
13,275 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
Shannon Hall |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
13,275 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
Jason Parks |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
13,275 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
Tim Landrey |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
8,850 | $ | [0.00 | ] | $ | 180,000,000 | |||||||
Derek Gordon |
3401 West End Avenue, Ste 260 Nashville, TN 37203 |
8,850 | $ | [0.00 | ] | $ | 180,000,000 |
E XHIBIT B
FORM OF
ELECTION OF EXCHANGE
J. Alexanders Holdings, LLC
Reference is hereby made to the Second Amended and Restated Limited Liability Company Agreement of J. Alexanders Holdings, LLC, dated as of [ ], 2015 (as may be amended, modified and/or supplemented from time to time in accordance with its terms, the Agreement ), made by and among J. Alexanders Holdings, LLC, a Delaware limited liability company (including any successor, the Company ), J. Alexanders Holdings, Inc., a Tennessee corporation (including any successor, J. Alexanders ), and each of the other holders of Units (as defined therein) from time to time party thereto (each, a Member and, collectively, the Members ). Capitalized terms used but not defined herein shall have the meanings given to them in the Agreement.
The undersigned Class B Member hereby transfers to the Company the number of Class B Units set forth below in Exchange for [a Cash Exchange Payment to the account set forth below or for]* shares of Common Stock to be issued in its name as set forth below, as set forth in Article XII of the Agreement, effective [in the case of an Exchange for shares of Common Stock]* as of the close of business on the Date of Exchange set forth below. The undersigned hereby acknowledges that this Election of Exchange is revocable (without J. Alexanders consent) only by a written notice of revocation delivered to J. Alexanders at least ten (10) business days prior to the Date of Exchange.
Legal Name of Member: |
|
Address of Member: |
|
Number of Class B Units to be Exchanged: |
|
Date of Exchange: |
|
[Cash Exchange Payment instructions: |
|
]* |
* | Delete bracketed provisions if Exchange is being effected by the Management Company |
Exhibit 10.2
MANAGEMENT CONSULTING AGREEMENT
TABLE OF CONTENTS
Page | ||||||
1. |
Engagement | 1 | ||||
2. |
Term | 1 | ||||
3. |
Services | 1 | ||||
4. |
Independent Contractor; Use of Subcontractors | 2 | ||||
5. |
Other Activities of Advisor; Investment Opportunities | 2 | ||||
6. |
Compensation | 3 | ||||
7. |
Out-of-Pocket Expenses | 4 | ||||
8. |
Standard of Care; Disclaimer; Limitation of Liability | 4 | ||||
9. |
Indemnification | 4 | ||||
10. |
Termination | 5 | ||||
11. |
Accuracy of Information | 6 | ||||
12. |
Representations and Warranties | 6 | ||||
13. |
General Provisions | 7 |
i
MANAGEMENT CONSULTING AGREEMENT
This MANAGEMENT CONSULTING AGREEMENT (this Agreement ) is made and entered into as of , 2015, by and between Black Knight Advisory Services, LLC, a Delaware limited liability company ( Advisor ), and J. Alexanders Holdings, LLC, a Delaware limited liability company (the Company ). Advisor and the Company are collectively referred to herein as the Parties.
RECITALS
WHEREAS, Advisor has expertise in the areas of finance, strategy, investment, acquisitions and other matters relating to the Company and its business; and
WHEREAS, in accordance with the terms of this Agreement the Company desires to retain Advisor to provide certain consulting services to the Company, and Advisor desires to perform such services for the Company, on the terms and conditions hereinafter provided.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and other consideration the receipt and sufficiency of which are expressly acknowledged hereby, the Parties hereby agree as follows:
1. Engagement . The Company agrees to retain Advisor, and Advisor agrees to be retained, to perform certain services for the Company as set forth in Section 3 of this Agreement. The Parties acknowledge that the Services (as defined herein) will be performed by officers, employees or consultants of the Advisor, who may also serve, from time to time, as officers, employees or consultants of other companies or entities.
2. Term . The term of this Agreement (the Initial Term ) shall begin on the date hereof (the Effective Date and continue for an initial term expiring on the seventh (7th) anniversary of the Effective Date unless earlier terminated pursuant to Section 10 hereof. Each one-year period during the Initial Term or any extended term that ends on an anniversary date of the Effective Date is referred to herein as an Agreement Year .
At the expiration of the Initial Term, this Agreement shall be renewed automatically for additional one-year terms (each, a Renewal Term ) unless the Advisor or the Company terminates this Agreement pursuant to Section 10 hereof. Notwithstanding anything in this Agreement to the contrary,
(a) | the provisions of Section 9 shall survive the termination of this Agreement and |
(b) | no termination of this Agreement will affect the Companys obligation to promptly pay all and any fees accrued, or to reimburse any cost or expense incurred, pursuant to the terms of this Agreement before the effective date of termination. |
3. Services . Advisor or any of its affiliates shall provide the Company and its subsidiaries and affiliates with the services set forth on Exhibit A hereto (the Services ).
The Company shall use the Services of Advisor and Advisor shall make itself available for the performance of the Services upon reasonable notice. Advisor shall perform the Services to reasonably meet the Companys material requirements as identified by the Company, taking into account other engagements that Advisor may have. Advisor shall have the right to identify such employees and agents of Advisor to perform the Services as Advisor shall deem appropriate in its discretion.
1
The Services are intended to be those services and functions that are appropriate to provide guidance and advice for the operation and management of the Company and are not intended to be duplicative of services and functions for the operating subsidiaries of the Company that are to be performed by officers, employees and consultants of those companies.
4. Independent Contractor; Use of Subcontractors . To the maximum extent permitted by law, Advisor shall be deemed an independent contractor in the performance of Services under this Agreement. This Agreement does not nor shall at any time be deemed to create any fiduciary or other implied duties or obligations whatsoever between Advisor and the Company, other than the duties and obligations expressly set forth herein.
Nothing in this Agreement shall prevent Advisor from rendering or performing services similar to those provided to the Company under this Agreement to or for itself or other persons, firms or companies. Advisor may hire or engage one or more subcontractors to perform any or all of its obligations under this Agreement; provided, however that, subject to Sections 8(c) and 9 of this Agreement, as between Advisor and any such subcontractor, Advisor will in all cases remain primarily responsible to the Company for all obligations undertaken by it under this Agreement.
Nothing contained herein shall create, or shall be construed as creating, a partnership or joint venture of any kind or as imposing upon any Party any partnership duty, obligation or liability to any other Party.
5. Other Activities of Advisor; Investment Opportunities . The Company expressly acknowledges and agrees that neither Advisor nor any of Advisors employees, officers, directors, affiliates or associates (collectively, the Advisor Group ) shall be required to devote its full time and business efforts to the duties of Advisor specified in this Agreement. Advisor shall devote only so much of its time and efforts as Advisor reasonably deems necessary to perform the Services.
The Company expressly acknowledges and agrees that members of the Advisor Group are engaged in the business of investing in, acquiring and/or managing businesses for their own account, for the account of their affiliates and associates and for the account of other unaffiliated parties, and understands that Advisor will continue to be engaged in such business (and other business or investment activities) during the term of this Agreement. Advisor makes no representations or warranties, express or implied, in respect of the Services to be provided by the Advisor Group. Except as Advisor may otherwise agree in writing after the date hereof:
(a) | each member of the Advisor Group shall have the right to, and shall have no duty (contractual or otherwise) whatsoever not to, directly or indirectly |
(i) | engage in the same or similar business activities or lines of business as the Company, or |
(ii) | do business with any client or customer of the Company; |
(b) | no member of the Advisor Group shall be liable to the Company for breach of any duty (contractual or otherwise) by reason of any such activities or of such members participation therein; and |
(c) |
in the event that any member of the Advisor Group acquires knowledge of a potential transaction or matter that may be a corporate opportunity for the Company, on the one hand, and such member of the Advisor Group, on the other hand, or any other person or entity, no member of the Advisor Group shall have any duty (contractual or otherwise) to communicate or present such corporate opportunity to the Company, and, notwithstanding any provision of this |
2
Agreement to the contrary, no member of the Advisor Group shall be liable to the Company for breach of any duty (contractual or otherwise) by reason of the fact that any member of the Advisor Group directly or indirectly pursues or acquires such opportunity for itself, directs such opportunity to another person or entity, or does not present such opportunity to the Company. |
In no event will any member of the Advisor Group be liable to the Company for any indirect, special, incidental or consequential damages, including lost profits or savings, whether or not such damages are foreseeable, or in respect of any liabilities relating to any third party claims (whether based in contract, tort or otherwise) other than for third-party claims relating to the services which may be provided by Advisor hereunder.
6. Compensation . In consideration of the Services to be rendered by Advisor hereunder, during the term of this Agreement, the Company shall compensate Advisor as follows:
(a) | The Company shall issue the Advisor Class B Units of the Company pursuant to a separate Unit Grant Agreement between the Company and the Advisor dated as of the date hereof (the Incentive Compensation Units ). |
(b) | The Company shall pay Advisor an annual incentive fee (the Base Fee ) equal to the product of |
(1) | three percent (3%), multiplied by |
(2) | the Adjusted EBITDA (as defined below) of J. Alexanders Holdings, Inc.(J. Alexanders) for the most recently completed fiscal year of J. Alexanders, calculated as of the end of each such fiscal year. |
For purposes hereof, Adjusted EBITDA means, for the applicable period, the net income (loss) of J. Alexanders and its now existing or future subsidiaries for such period on a consolidated basis, before interest expense, income tax (expense) benefit, depreciation and amortization, and adding asset impairment charges and restaurant closing costs, loss on disposals of fixed assets, transaction and integration costs, non-cash compensation, loss from discontinued operations, gain on debt extinguishment, pre-opening costs and certain unusual items, as calculated from J. Alexanders financial statements.
The calculation of Adjusted EBITDA and the Base Fee payable with respect thereto with respect to any fiscal year will be made in good faith by the Compensation Committee of the Board of Directors of J. Alexanders (or if there is then no such Committee, by the entire Board of Directors of J. Alexanders), based on the audited financial statements of J. Alexanders for such fiscal year and, if applicable, consistent with J. Alexanders calculation of Adjusted EBITDA for such fiscal year as set forth in its public reports. The Base Fee will be paid within ten (10) business days following the completion of such audit, but in any event no later than 90 days following the end of such fiscal year.
With respect to the fiscal year of J. Alexanders ending January 3, 2016 and the fiscal year of J. Alexanders in which this Agreement is terminated (if other than on the last day of such fiscal year), the Advisor shall be entitled to a pro-rated Base Fee determined by multiplying the Base Fee the Advisor would have otherwise been entitled receive for such full fiscal year, by a fraction, the numerator of which is the number of days during such fiscal year that this Agreement was in effect, and the denominator of which is the actual of days in such fiscal year).
3
7. Out-of-Pocket Expenses . All obligations or expenses incurred by Advisor in the performance of its obligations hereunder shall be for the account of, on behalf of, and at the expense of the Company, and all such expenses shall be promptly reimbursed by the Company. Advisor shall not be obligated to make any advance to or for the account of the Company or to pay any sums, except out of funds held in accounts maintained by the Company, nor shall Advisor be obligated to incur any liability or obligation for the account of the Company. The Company shall reimburse Advisor by wire transfer of immediately available funds for any amount paid by Advisor, which shall be in addition to any other amount payable to Advisor under this Agreement.
8. Standard of Care; Disclaimer; Limitation of Liability .
(a) | Advisor will perform, or cause its employees, subcontractors or consultants to perform the Services in conformity with this Agreement, in good faith and in a manner Advisor reasonably believes to be in accordance with reasonably prudent industry practice. |
(b) | Other than as set forth in clause (a) above, Advisor makes no representations or warranties, express or implied, in respect of the Services to be provided by it hereunder. |
(c) | Neither Advisor nor any of its officers, directors, managers, principals, members, employees, agents, representatives, agents or affiliates (each a Related Party and, collectively, the Related Parties ) shall be liable to the Company or any of its affiliates for any loss, liability, damage or expense arising out of or in connection with the performance of any Services contemplated by this Agreement, unless such loss, liability, damage or expense shall be proven and confirmed by a non-appealable final judgment to result directly from the gross negligence or willful misconduct of such person. In no event will Advisor or any of its Related Parties be liable to the Company for special, indirect, punitive or consequential damages, including, without limitation, loss of profits or lost business, even if Advisor has been advised of the possibility of such damages. Under no circumstances will the liability of Advisor and Related Parties exceed, in the aggregate, the fees actually paid to Advisor hereunder. |
9. Indemnification . To the fullest extent permitted by law, the Company shall indemnify and hold harmless Advisor and each of its Related Parties (each, an Indemnified Party ) from and against any and all losses, claims (whether or not litigated), actions, damages and liabilities, joint or several, and expenses (including amounts paid in satisfaction of judgments, in compromises and settlements, as fines and penalties and reasonable attorneys fees and other legal or other costs and expenses of investigating or defending against any claim or alleged claim but excluding any liabilities for taxes of any Indemnified Party), known or unknown, liquidated or unliquidated, to which such Indemnified Party may become subject under any applicable statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment or decree, made by any third party or otherwise, relating to or arising out of the Services or other matters referred to in or contemplated by this Agreement or the engagement of such Indemnified Party pursuant to, and the performance by such Indemnified Party, of the Services or other matters referred to or contemplated by this Agreement, and the Company will reimburse any Indemnified Party for all costs and expenses (including, without limitation, reasonable attorneys fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatening claim, or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party thereto. The termination of any proceeding by settlement, judgment, order or upon a plea of nolo contendre or its equivalent shall not, of itself, create a presumption that an Indemnified Party was engaged in willful misconduct or bad faith.
4
The Company will not be liable under the foregoing indemnification provision to the extent that any loss, claim, damage, liability, cost or expense is determined by a court, in a final judgment from which no further appeal may be taken, to have resulted solely from the gross negligence or willful misconduct of such Indemnified Party.
The reimbursement and indemnity obligations of the Company, under this Section 9 shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Related Party or controlling persons (if any), as the case may be, of Advisor and any Related Party and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, Advisor, any such affiliate and any such Related Party or other person. The provisions of this Section 9 shall survive the termination of this Agreement.
10. Termination . This Agreement may be terminated by the Parties as set forth in this Section 10 as follows:
(a) | At any time during the Term, the Company will be entitled to terminate this Agreement: |
(i) | if Advisor fails in any material respect to perform any material Services in accordance with the Standard of Care set forth in Section 8(a) above, and such failure has a material adverse effect on the Company or its rights and obligations under this Agreement; |
(ii) | if Advisor fails in any material respect to perform any material Services, which failure would result in liability of Advisor to the Company (after giving effect to Section 8(c) of this Agreement), and such failure has a material adverse effect on the Company or its rights and obligations under this Agreement; or |
(iii) | on written notice to Advisor, delivered at least six (6) months before the expiration of the Initial Term or any Renewal Term then-in-effect, with such termination to be effective as of the expiration of the Initial Term or any Renewal Term then-in-effect, as applicable; provided, that in the event of a termination pursuant to this clause (iii) that is to be effective before expiration of the tenth (10 th ) Agreement Year, then (x) all unvested Incentive Compensation Units shall become fully vested, and (y) as a condition to the effectiveness of such termination, Advisor shall be paid in a lump sum the Early Termination Amount. The Early Termination Amount shall be an amount equal to the product of (a) the Base Fee for the most recently completed fiscal year of the Company, multiplied by (b) the sum of 10 minus the number of Agreement Years (and any fraction thereof) that has elapsed since the Effective Date (provided, that such sum may not be less than zero), adjusted to the net present value of such fees calculated using a discount rate equal to the ten-year treasury rate (at the close of business on the business day immediately preceding the date of such termination); provided, however, that in the event the Company terminates this Agreement following a Sale of the Company (as defined below), the factor in clause (b) above to be multiplied by the Base Fee shall not exceed three (3). |
For purposes hereof Sale of the Company means the consummation of a transaction, whether in a single transaction or in a series of related transactions that are consummated contemporaneously (or consummated pursuant to contemporaneous agreements), with any other person or group of persons on an
5
arms-length basis, pursuant to which such person or group of persons (a) acquire (whether by merger, unit or stock purchase, recapitalization, reorganization, redemption, issuance of units or stock or otherwise), directly or indirectly, more than fifty-percent (50%) of the voting power of J. Alexanders or the Company or (b) acquire assets constituting all or substantially all of the assets of J. Alexanders or the Company and its subsidiaries on a consolidated basis; provided , however , that in no event shall a Sale of the Company be deemed to include any transaction effected for the purpose of changing, directly or indirectly, the domicile, form of organization or the organizational structure of J. Alexanders or the Company.
(b) | At any time during the Term, Advisor will be entitled to terminate this Agreement: |
(i) | if the Company fails to pay any amounts due thereunder within five (5) business days following notice from Advisor of such failure; |
(ii) | if the Company breaches in any material respect any material term of this Agreement, which breach is not cured within five (5) business days of notice thereof from Advisor; or |
(iii) | on 30 calendar days written notice to the Company; provided, however, that in the event Advisor provides such notice within 180 days following a Sale of the Company, Advisor shall be paid in a lump sum the Early Termination Amount upon such termination of this Agreement, and provided further that in calculating the Early Termination Amount in such event, the factor in clause (b) of the definition of Early Termination Amount to be multiplied by the Base Fee shall not exceed three (3). |
(c) | This Agreement shall terminate automatically if either party files a petition for bankruptcy, reorganization or arrangement, makes an assignment for the benefit of creditors or otherwise becomes insolvent. |
11. Accuracy of Information . The Company and its subsidiaries shall furnish or cause to be furnished to Advisor such information as Advisor believes reasonably appropriate to its Services hereunder. The Company and its subsidiaries recognize and confirm that Advisor (a) will use and rely primarily on the information provided by the Company and on information available from generally recognized public sources (all such information so furnished to Advisor, the Information ) in performing the Services contemplated by this Agreement without having independently verified the same; (b) does not assume responsibility for the accuracy or completeness of the Information; and (c) is entitled to rely upon the Information without independent verification.
12. Representations and Warranties . Each of the Parties represents and warrants to the other that:
(a) | Such Party is duly organized and validly existing under the laws of the jurisdiction of its formation. |
(b) | Such Party has all requisite corporate power and authority to enter into this Agreement and to perform its obligations provided for in this Agreement. |
(c) | This Agreement has been duly authorized, executed and delivered by such Party and constitutes a valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles. |
6
(d) | All authorizations and government approvals which are necessary for the execution and delivery of this Agreement and the performance of such Partys obligations hereunder have been obtained and are in full force and effect, and no other action by, and no notice or filing with, any governmental authority or other individual or entity is required for such execution, delivery or performance. |
(e) | The execution, delivery and performance of this Agreement does not and will not (i) violate any provision of its organizational documents, any authorization, any government rule or any government approval or, (ii) conflict with, result in a breach of or constitute a default under any mortgage, indenture, loan, credit agreement or other agreement to which such Party is a party or by which such Party or its property may be bound or affected in any material respect. |
13. General Provisions .
(a) | Entire Agreement; Amendment . This Agreement contains the entire agreement of the Parties hereto relating to the subject matter hereof, and that there exists no further agreement between the Parties with respect to any aspect of the subject matter hereof. No amendment, waiver or modification of this Agreement shall be valid or binding unless made in writing and duly executed by each of the Parties hereto. |
(b) | Notices . All notices which may be or are required to be given pursuant to this Agreement shall be |
(i) | either delivered in person or sent via postage prepaid, certified or registered mail, return receipt requested, and |
(ii) | addressed to the party to whom sent or given at the address set forth on the signature page hereof or to such other address as any party hereto may have given to the party hereto in such manner. |
If delivered, such notice shall be deemed given when received; if mailed, such notice shall be deemed made or given five (5) days after such notice has been mailed, as provided above.
(c) | Confidential Information . Each Party shall use at least the same standard of care in the protection of Confidential Information of the other Party as it uses to protect its own confidential or proprietary information; provided that such Confidential Information shall be protected in at least a reasonable manner. For purposes of this Agreement, with respect to each Party, Confidential Information includes all confidential or proprietary information and documentation of the other Party, and all of the other Partys software, data, financial information all reports, exhibits and other documentation prepared by any of the other Partys subsidiaries or affiliates, in each case, to the extent provided or made available under, or in furtherance of, this Agreement. |
7
(d) | Miscellaneous . |
(i) | This Agreement and the rights and obligations of the Parties hereunder shall be governed by the laws of the State of Tennessee without regard to choice or conflict of laws. |
(ii) | This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns. |
(iii) | No delay or failure by any party in exercising any of their rights, remedies, powers, or privileges hereunder, at law or in equity, and no course of dealing among the Parties or any other person shall be deemed to be a waiver by any party of any such rights, remedies, powers, or privileges, even if such delay or failure is continuous or repeated nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise thereof by any party. |
(iv) | If any term or provision of this Agreement or any portion of a term or provision hereof or the application thereof to any individual or entity or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision or portion thereof to individuals or entities or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement and each portion thereof shall be valid and enforced to the fullest extent permitted by law. |
(v) | The headings in this Agreement are for convenience only and shall not affect its construction. |
(vi) | This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which, when taken together, shall constitute one agreement. |
(vii) | This Agreement may be executed and delivered by electronic means including but not limited to scanning as a .pdf or telefacsimile with the same force and effect as if it were a manually executed and delivered counterpart. |
(viii) | Each Party upon the request of the other Party agrees to perform such further acts and execute and deliver such further documents as may be reasonably necessary to carry out the terms and intent of this Agreement. |
[Signature Page Follows.]
8
IN WITNESS WHEREOF, the duly authorized representatives of the Parties hereto have executed this Agreement as of the day and year first above written.
J. ALEXANDERS HOLDINGS, LLC | ||||
By: |
|
|||
Name: | ||||
Title: | ||||
Address: | ||||
|
||||
|
||||
BLACK KNIGHT ADVISORY SERVICES, LLC | ||||
By: |
|
|||
Name: |
|
|||
Title: |
|
|||
Address: | ||||
|
||||
|
Exhibit A
Description of Services
As requested by the Company:
| Assist in developing and implementing corporate strategy, including providing advice with respect to business planning, compensation and benefits and the development and implementation of strategies for improving the operating, marketing and financial performance of the Company; |
| Assist in identifying locations for restaurant expansion; |
| Assist in the negotiation of leases and lease renewals for restaurant locations; |
| Assist in budgeting future corporate investments; |
| Assist in developing acquisition and divestiture strategies and making available in-house, legal, finance, tax and other necessary disciplines to execute on such strategies; and |
| Advising on debt and equity financings and making available in-house, legal, finance, tax and other necessary disciplines in connection therewith. |
Exhibit 10.3
J. ALEXANDERS HOLDINGS, LLC
UNIT GRANT AGREEMENT
This Unit Grant Agreement (this Agreement ) is made as of , 2015 (the Grant Date ) by J. Alexanders Holdings, LLC, a Delaware limited liability company (the Company ), with Black Knight Advisory Services, LLC, a Delaware limited liability company (the Grantee ). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Second Amended and Restated Limited Liability Company Agreement of the Company dated as of , 2015, as it may be amended from time to time, or any successor agreement thereto (the LLC Agreement ).
1. Grant of Units; Hurdle Amount . The Company hereby grants to the Grantee, in connection with the Grantees performance of services to or for the benefit of the Company, 1,868,333 Class B Units (the Units ), subject to the terms and conditions of this Agreement (the Award ), and the LLC Agreement. The Hurdle Amount applicable to the Units as of the date hereof is $[ ] million 1 . The Hurdle Amount will be increased by the aggregate amount of all Capital Contributions made to the Company after the Grant Date.
2. Vesting; Service Termination; Forfeiture .
(a) Vesting . Subject to the Grantees continued service to the Company through the applicable vesting date, the Grantee shall vest in its Units at the rate of one-third of the Units on each of the first, second and third anniversaries of the Grant Date.
(b) Accelerated Vesting . Notwithstanding the foregoing, all of the Units will become vested 100% immediately upon the (i) consummation of a Sale of the Company, or (ii) the termination of the Management Agreement other than by the Company pursuant to Section 10(a)(i) or 10(a)(ii) thereof or by the Grantee pursuant to Section 10(b)(iii) thereof. For purposes hereof Sale of the Company means the consummation of a transaction, whether in a single transaction or in a series of related transactions that are consummated contemporaneously (or consummated pursuant to contemporaneous agreements), with any other Person or group of Persons on an arms-length basis, pursuant to which such Person or group of Persons (a) acquire (whether by merger, Unit or stock purchase, recapitalization, reorganization, redemption, issuance of Units or stock or otherwise), directly or indirectly, more than fifty-percent (50%) of the voting power of J. Alexanders or the Company or (b) acquire assets constituting all or substantially all of the assets of J. Alexanders or the Company and its Subsidiaries on a consolidated basis; provided , however , that in no event shall a Sale of the Company be deemed to include any transaction effected for the purpose of changing, directly or indirectly, the domicile, form of organization or the organizational structure of J. Alexanders or the Company.
(c) Termination of Service - Unvested Units . Consistent with Section 3.5 of the LLC Agreement, upon the termination of the Management Agreement by the Company pursuant to Section 10(a)(i) or 10(a)(ii) thereof, or by the Grantee pursuant to Section 10(b)(iii) thereof, all unvested Units shall be immediately and automatically cancelled and forfeited for no consideration.
(d) Termination of Service - Vested Units . Upon any termination of the Management Agreement (for any reason or for no reason), the Grantee shall have 90 days within which to effect an Exchange of the Vested Units for Common Stock pursuant to Article XII of the LLC Agreement. In the event the Grantee fails to effect such Exchange within 90 days following the termination of the Management Agreement, all vested Units shall be immediately and automatically cancelled and forfeited for no consideration.
1 | To be equal to market cap of parent company, based on volume weighted average closing price over [5] days preceding date of agreement. |
3. Allocations, Distributions; Puts, Calls and other rights . The Grantees entitlement to allocations, distributions and other rights with respect to the vested and unvested Units, as applicable, are set forth in the LLC Agreement. In no event shall the Units be sold or otherwise disposed of within the six-month period (or such other period as may be specified by the Company) following the date the Units vest (the Holding Period ) to the extent such disposition of the Units during the Holding Period would cause the Award not to be classified as an equity award under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation (or any applicable successor standards).
4. Subject to Terms of LLC Agreement . As a further condition to the issuance of the Units pursuant to this Agreement, the Grantee shall execute and deliver to the Company a copy of the LLC Agreement evidencing the Grantees status as a Class B Member. The Grantee acknowledges receipt of the LLC Agreement.
5. Grantees Representations and Warranties . In connection with the grant of the Units hereunder, the Grantee hereby represents and warrants to the Company that:
(a) The Grantee is acquiring the Units hereunder for the Grantees own account with the present intention of holding such securities for investment purposes and that the Grantee has no intention of selling such securities in a public distribution in violation of the federal securities laws or any applicable state or foreign securities laws. The Grantee acknowledges that the Units have not been registered under the Securities Act or applicable state or foreign securities laws and that the Units will be issued to the Grantee in reliance on exemptions from the registration requirements of the Securities Act and applicable state and foreign statutes and in reliance on the Grantees representations and agreements contained herein.
(b) The Grantee acknowledges that the Units are subject to the terms and provisions of the LLC Agreement, and acknowledges and consents to be bound by such terms and provisions with respect to the Units, including, without limitation, the applicable provisions set forth in Article VIII (including the restrictions on transfers).
(c) The Grantee has had an opportunity to ask the Company and its representatives questions and receive answers thereto concerning the terms and conditions of the Units to be acquired by the Grantee hereunder and has had full access to such other information concerning the Company as the Grantee may have requested in making the Grantees decision to acquire the Units being issued hereunder.
(d) The Grantee will not sell or otherwise transfer, assign, convey, exchange, mortgage, pledge, grant or hypothecate any Units without registration under the Securities Act (and any applicable federal, state and foreign securities laws) or an exemption therefrom, and provided there exists such a registration or exemption, any such transfer of Units by the Grantee or subsequent holders of Units will be in compliance with the provisions of this Agreement and the LLC Agreement.
(e) The Grantee has all requisite legal capacity to carry out the transactions contemplated by this Agreement and the LLC Agreement, and the execution, delivery and performance by the Grantee of this Agreement and the LLC Agreement and all other agreements contemplated hereby and thereby to which the Grantee is a party have been duly authorized by the Grantee.
(f) The Grantee has only relied on the advice of, or has consulted with, the Grantees own legal, financial and tax advisors, and the determination of the Grantee to acquire the Units pursuant to this Agreement has been made by the Grantee independent of any statements or opinions as to the advisability of such acquisition or as to the properties, business, prospects or condition (financial or otherwise) of the Company which may have been made or given by any other Person (including all Persons acquiring Units on the date hereof) or by any agent or employee of such Person and independent of the fact that any other Person has decided to become a holder of Units.
2
6. Certificates; Legends . To the extent that the Units are certificated, the Managing Member or such other escrow holder as the Managing Member may appoint shall retain physical custody of any certificate representing the Units issued hereunder until all of the restrictions imposed under this Agreement and the LLC Agreement with respect to such Units expire or shall have been removed. In order to enforce the restrictions imposed upon the Units under this Agreement and the LLC Agreement, the Managing Member shall cause a legend or legends to be placed on any certificates representing the Units that are still subject to restrictions under this Agreement or the LLC Agreement, which legend or legends shall make appropriate reference to the conditions imposed thereby. Nothing contained herein shall require the Managing Member or the Company to certificate the fully vested Units.
7. Adjustments . If there shall occur any change with respect to the outstanding Units by reason of any recapitalization, reclassification, unit split, reverse unit split or any merger, reorganization, consolidation, combination, spin-off or other similar change affecting the Units, the Managing Member shall, in the manner and to the extent that it deems appropriate and equitable in its discretion, cause an adjustment to be made in the number of Units granted hereunder, the Hurdle Amount and any other terms hereunder that are affected by the event to the extent necessary to prevent dilution or enlargement of the Grantees rights hereunder.
8. Administration . The Managing Member shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application of this Agreement as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Managing Member in good faith shall be final and binding upon the Grantee, the Company and all other interested persons.
9. Taxes .
(a) Tax Election . The Grantee shall make an election with the United States Internal Revenue Service under Section 83(b) of the Code not later than 30 days after the Grant Date. A Section 83(b) election form is attached hereto as Exhibit A . The Grantee shall deliver a copy of any such Section 83(b) election to the Company.
(b) No Guarantee of Tax Treatment . Each Unit will be treated as a separate profits interest within the meaning of Rev. Proc. 93-27, 1993-2 C.B. 343 (such interest, a Profits Interest ). Notwithstanding anything to the contrary, distributions to the Grantee pursuant to Section 5.2 and 5.3 of the LLC Agreement shall be limited to the extent necessary so that the Profits Interest of the Grantee qualifies as a profits interest under Rev. Proc. 93-27, Award and LLC Agreement shall be interpreted accordingly. In accordance with Rev. Proc. 2001-43, 2001-2 CB 191, the Company shall treat the Grantee as the owner of the Units underlying this Award from the Grant Date, and shall file its IRS Form 1065, and issue appropriate Schedule K-1s to the Grantee allocating to the Grantee the Grantees distributive share of all items of income, gain, loss, deduction and credit associated with such Profits Interest as if it were fully vested. The Grantee agrees to take into account such distributive share in computing the Grantees federal income tax liability for the entire period during which the Grantee holds the Award and/or Units. The Company and the Grantee will not claim a deduction (as wages, compensation or otherwise) for the fair market value of the Profits Interest issued to the Grantee, either at the time of grant of the Award or at the time the Units becomes substantially vested. The undertakings contained in Section 3.4(a) of the LLC Agreement shall be construed in accordance with Section 4 of Rev. Proc. 2001-43. The provisions of Section 3.4(a) of the LLC Agreement shall apply regardless of whether or not the Grantee files an election pursuant to Section 83(b) of the Code.
10. Transferability . The Grantee may not transfer or assign, directly or indirectly, this Agreement or any Units other than as provided under the LLC Agreement. Any purported assignment, transfer or grant by the Grantee, directly or indirectly, of this Agreement or any Units in contravention of this Agreement and the LLC Agreement shall be null and void.
3
11. Remedies . The parties hereto shall be entitled to enforce their rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement (including costs of enforcement) and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that either party may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement.
12. Governing Law . The Act shall govern all questions arising under this Agreement concerning the relative rights of the parties hereto. All other questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The parties hereto hereby irrevocably and unconditionally submit to the exclusive jurisdiction of any State or Federal court sitting in Nashville, TN over any suit, action or proceeding arising out of or relating to this Agreement. The parties hereby agree that service of any process, summons, notice or document by U.S. registered mail addressed to any party shall be effective service of process for any action, suit or proceeding brought against a party in any such court. The parties hereto hereby irrevocably and unconditionally waive any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. The parties hereto agree that a final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon any party and may be enforced in any other courts to whose jurisdiction any party is or may be subject, by suit upon such judgment.
13. Counterparts . This Agreement may be executed in any number of multiple counterparts, each of which shall be deemed to be an original copy and all of which shall constitute one agreement, binding on all parties hereto.
14. Successors and Assigns . Subject to the limitations set forth in this Agreement, this Agreement shall be binding upon, and inure to the benefit of the Company and its successors and assigns, the Grantee and any subsequent holder of the Units granted pursuant to this Agreement, and the respective successors and assigns of each of them, so long as they hold the Units granted pursuant to this Agreement.
15. Entire Agreement; Amendments and Waivers . This Agreement, together with the LLC Agreement constitutes the entire agreement between the parties hereto pertaining to the Units and fully supersedes any and all prior or contemporaneous agreements or understandings between the parties hereto pertaining to the Units. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. This Agreement may not be amended except in an instrument in writing signed on behalf of each of the parties hereto and approved by the Managing Member. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
16. Severability . Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
17. Descriptive Headings . The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
18. No Right to Continued Service . Nothing in this Agreement shall confer upon the Grantee any right to continue to provide services to or for the benefit of the Company or any of its Subsidiaries, or
4
shall interfere with or restrict in any way the rights of the Company or any of its Subsidiaries, which are hereby expressly reserved, to terminate the services of the Grantee, at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or any of its Subsidiaries, and the Grantee.
19. Conformity to Securities Laws . The Grantee acknowledges that this Agreement and the grant of the Units hereunder is intended to conform to the extent necessary with applicable federal and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Units are granted only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
20. Conflict between this Agreement and the LLC Agreement . In the event of a conflict between any term or provision contained herein and a term or provision of the LLC Agreement, the applicable term and provision of the LLC Agreement will govern and prevail.
[ Signature Page Follows ]
5
Executed as of the Grant Date.
J. ALEXANDERS HOLDINGS, LLC | BLACK KNIGHT ADVISORY SERVICES, LLC | |||||||
By: |
|
By: |
|
|||||
Name: | Name: | |||||||
Title: | Title: |
[Signature Page to Unit Grant Agreement]
Exhibit A
Section 83(b) Election
The undersigned taxpayer elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the Code ), to include in gross income as compensation for services the excess (if any) of the fair market value of the property described below over the amount paid for such property.
1. | The name, taxpayer identification number, address of the undersigned, and the taxable year for which this election is being made are: |
a. | TAXPAYERS NAME: Black Knight Advisory Services, LLC |
b. | TAXPAYERS SOCIAL SECURITY NUMBER: |
c. | ADDRESS: |
d. | TAXABLE YEAR: Calendar Year 2015 |
2. | The property that is the subject of this election is a limited liability company membership interest (the Membership Interest ) consisting of 1,868,333 Class B Units of J. Alexanders Holdings, LLC (the Company ). The Membership Interest is intended to be treated for federal income tax purposes by the Company and its members, including the undersigned, as a profits interest within the meaning of Revenue Procedure 93-27 and Revenue Procedure 2001-43 (together, the Revenue Procedures ) and other related official guidance promulgated by the Internal Revenue Service. Based on the Revenue Procedures, the undersigned believes that the undersigned is not subject to tax upon receipt of the Membership Interest, either at the time of the grant of the Membership Interest or at the time or times when the Membership Interest will vest under the terms of the grant agreement. However, in case it should be determined that any of the conditions necessary for the Revenue Procedures to apply have not been met and that the undersigneds receipt of the Membership Interest or the vesting thereof is subject to tax under Section 83 of the Code, the undersigned is making this protective election to have the receipt of the Membership Interest taxed under the provisions of Section 83(b) of the Code at the time the undersigned acquired the Membership Interest. |
3. | The Membership Interest was transferred to the undersigned on , 2015 (the Transfer Date ). |
4. | The Membership Interest is subject to the following restriction: the Membership Interest vests over a period of three (3) years from the Transfer Date, subject to (i) in part, the achievement of performance criteria and (ii) in certain circumstances, the acceleration of vesting upon the termination of the Management Consulting Agreement between the undersigned and the Company. If the undersigned ceases to perform services to or for the benefit of the Company and its subsidiaries prior to vesting, the unvested Membership Interest will automatically be forfeited and cancelled without any payment with respect thereto, unless the vesting of the Membership Interest is accelerated as a result of such termination. |
5. | The fair market value of the property (the Membership Interest) on the Transfer Date with respect to which the election is being made, determined without regard to any lapse restrictions and in accordance with Revenue Procedure 93-27 = $0. |
6. | The amount paid by the undersigned for the Membership Interest = $0. |
7. | The amount to include in gross income = $0. |
The undersigned taxpayer will:
| Not later than 30 days after the Transfer Date shown in paragraph 3 above, file this election with the Internal Revenue Service office with which the taxpayers most recent Federal income tax return was filed. |
| Provide copies of this election to (a) the person for whom the services are performed in connection with which the Membership Interest was transferred, and (b) the person to whom the Membership Interest was transferred, if the recipient of the Membership Interest was not the person performing the services in connection with which the Membership Interest was transferred. |
| Include a copy of this election with his or her Federal income tax return for the taxable year in which the Membership Interest was transferred. |
Date: | , 2015 | Black Knight Advisory Services, LLC | ||||||
By: |
|
|||||||
Name: | ||||||||
Title: |
Exhibit 10.4
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the Agreement ) is made as of this day of , 20 , between J. Alexanders Holdings, Inc., a Tennessee corporation (the Company ), and , a director of the Company (the Director ).
WHEREAS, the Company and the Director are aware of the increased exposure to litigation by directors of publicly-owned companies in the course of exercising their duties;
WHEREAS, the Company and the Director are also aware of conditions in the insurance industry that have affected the Companys ability to obtain adequate directors and officers liability insurance coverage on an economically acceptable basis;
WHEREAS, the Company desires to continue to benefit from the services of highly-qualified and experienced persons such as the Director;
WHEREAS, the Director desires to serve the Company as a director for so long as the Company is able to provide on an acceptable basis adequate and reliable indemnification against certain liabilities and expenses which may be incurred by the Director in connection with such service;
WHEREAS, the Tennessee Business Corporation Act (the Act ) and the charter of the Company (as the same may be amended from time to time, the Charter ), and the bylaws of the Company (as the same may be amended from time to time, the Bylaws ) provide for the indemnification of directors under certain circumstances;
WHEREAS, the Company and the Director recognize the potential inadequacy of the protection available to directors under the Act, the Charter, Bylaws and directors and officers liability insurance; and
WHEREAS, the Act and Bylaws specifically provide that the indemnification provided thereunder is not exclusive and contemplate that indemnification agreements may be entered into between the Company and its directors.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereby agree as follows:
Section 1. Service by Director . The Director agrees to continue to serve as a director of the Company, provided that (i) the Director may resign at any time in the event of any change in his or the Companys circumstances which would in his sole judgment make his resignation advisable and (ii) this Agreement shall not give the Director the right to be nominated or elected as a director of the Company or affect the right of shareholders to remove him or the rights of the Company or shareholders to seek judicial removal of the Director.
Section 2. Indemnification . To the maximum extent permitted by law, subject to the limitations contained in Section 4 or otherwise in this Agreement, the Company shall indemnify the Director against any Liability or Expense incurred in a Proceeding by reason of (or arising in part out of) an Indemnifiable Event, except that the Company shall not be required to indemnify the Director for any Liability or Expenses incurred in a Proceeding initiated by or on behalf of the Director or to which the Director voluntarily becomes a party unless (i) the Company has joined in or the board of directors has consented to the initiation of such Proceeding; (ii) the
Proceeding is one to enforce indemnification rights; or (iii) the Proceeding is instituted after a Change in Control. If the Director is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Liability or Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify the Director for the portion thereof to which the Director is entitled. Notwithstanding any other provision of this Agreement, to the extent that the Director has been successful on the merits in defense of any Proceeding relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, the Director shall be indemnified against all Liabilities and Expenses actually and reasonably incurred by the Director or on the Directors behalf in connection therewith.
Section 3. Expense Advances . If so requested by the Director, the Company shall advance the reasonable Expenses incurred by the Director in a Proceeding by reason of (or arising in part out of) an Indemnifiable Event, except that the Company shall not be required to advance Expenses to the Director for any Expenses incurred in a Proceeding initiated by or on behalf of the Director or to which the Director voluntarily becomes a party unless (i) the Company has joined in or the board of directors has consented to the initiation of such Proceeding; (ii) the Proceeding is one to enforce indemnification rights; or (iii) the Proceeding is instituted after a Change in Control. Expense advancements shall be provided within thirty (30) calendar days of the Director furnishing the Company a request of such advance or advances, and: (a) a written affirmation, personally signed by or on behalf of the Director, of his good faith belief that he is not liable for (i) a breach of his duty of loyalty to the Company or its shareholders, (ii) any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) any unlawful distributions to the Companys shareholders and that he is entitled to advancement of Expenses under the terms of this Agreement; and (b) if requested by the Company, a written opinion of counsel for the Director in the Proceeding to the effect that, based on the facts known to such counsel, it is reasonably possible that the Director will not be found liable contrary to his affirmation; and (c) a written undertaking (in the form of an unlimited general obligation of the Director, which need not be secured), personally signed by or on behalf of the Director to repay any advances, if a judgment or final adjudication adverse to the Director establishes his liability contrary to his affirmation. Such advances are deemed to be an obligation of the Company to the Director hereunder and shall in no event be deemed a personal loan.
Section 4. Limitations on Indemnification . No indemnification pursuant to this Agreement may be made (a) in advance of a final disposition of the Proceeding for which indemnification is sought, (b) for any Liability or Expenses for which the Director has been reimbursed by insurance or otherwise or (c) if a judgment or other final adjudication adverse to the Director establishes his liability for (i) a breach of his duty of loyalty to the Company or its shareholders, (ii) any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) any unlawful distributions to the Companys shareholders or (iv) profits made from the purchase or sale by the Director of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act ), or any similar provisions of any federal or state statutes or regulations. A settlement without the Companys prior written consent shall not be deemed a final disposition, and no indemnification for any amount paid in such a settlement may be made under this Agreement.
Section 5. Non-Exclusive Rights. The Directors rights to indemnification and advancement of expenses under this Agreement are intended to be cumulative and not exclusive of other rights
2
to which the Director may be entitled under any insurance policy, the Act, the Charter or Bylaws of the Company or a resolution of shareholders or directors providing for indemnification. The Directors right to indemnification and advancement of Expenses as provided in Sections 2 and 3 of this Agreement are intended to be greater than those which are otherwise provided for in the Act and in excess of those provided in the Companys Charter and Bylaws, notwithstanding the Directors failure to meet the standard of conduct required for permissive indemnification under the Act.
Section 6. Liability Insurance . The Company currently has, or will have within a reasonable time following the date of this Agreement, in force policies of directors and officers liability insurance ( Liability Insurance ). The Company agrees to furnish to the Director copies of such Liability Insurance policies upon his request. The Company further agrees that, so long as the Director shall continue to serve as a director of the Company, the Company will, subject to the limitations set forth below, endeavor to purchase and maintain in force for the benefit of the Director one or more policies of Liability Insurance providing coverage at least comparable to that provided under the policies currently in force and in no event less than that provided for the benefit of any other director. The Company shall not be required to maintain such Liability Insurance in force if, in the sole judgment of the board of directors of the Company serving at the time such judgment is made, Liability Insurance is not reasonably available, the cost of such insurance is disproportionate to the amount of the coverage or such insurance is so limited that there is an insufficient benefit from such insurance.
Section 7. Notification and Defense of Claim . If a claim is made against the Company with respect to any Proceeding, the Director shall notify the Company of the commencement of such Proceeding promptly after receipt by the Director of notice of the commencement thereof. With respect to any such Proceeding as to which the Director notifies the Company of the commencement thereof, (i) the Company shall be entitled to participate therein at its own expense and (ii) except as otherwise provided below, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the Director. After notice from the Company to the Director of its election to assume the defense thereof, the Company shall not be liable to the Director under this Agreement for any legal expenses subsequently incurred by the Director in connection with the defense thereof. The Director shall have the right to employ his own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of the Director, unless (i) the employment of such counsel by the Director has been authorized by the Company, (ii) the Director shall have reasonably concluded that there may be a conflict of interest between the Company and the Director in the conduct of his defense in such Proceeding or (iii) the Company shall have failed to promptly employ its counsel to assume the defense in such Proceeding, in each of which cases the fees and expenses of the Directors counsel shall be paid by the Company. The Company shall not be entitled to assume the defense in any Proceeding brought by or on behalf of the Company as to which the Director shall have reasonably concluded that there may be a conflict of interest between the Company and the Director in the conduct of his defense.
Section 8. Settlement . The Company shall not settle any claim in any manner which would impose any penalty or any injunctive relief restricting the activities of the Director without the Directors written consent. The Director shall not unreasonably withhold his consent to any proposed settlement which does not impose a fine or injunctive relief, if the Company pays all amounts due under such settlement immediately upon such settlement becoming effective.
3
Section 9. Cooperation of Director . The Director shall cooperate with the person or persons making the determination on behalf of the Company with respect to the Directors entitlement to indemnification under this Agreement, including providing any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to the Director and relevant to such determination.
Section 10. Certain Presumptions and Burden of Proof . If the person or persons making such determination on behalf of the Company with respect to the Directors entitlement to indemnification or advancement of Expenses shall not have reached a decision within sixty (60) days after receipt by the Company of the Directors request therefor, the Director shall be deemed to be entitled thereto; provided, however, such sixty-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person or persons making the determination decide in good faith that additional time is required for obtaining or evaluating documentation or other relevant information. In any suit by the Director to enforce his rights under this Agreement, (i) the Director shall be presumed to be entitled to indemnification, subject to the Companys ability to rebut such presumption, and (ii) the termination of a Proceeding by a judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the Director did not act in good faith, did not meet a particular standard of conduct, did not have any particular belief, or that a court has determined that indemnification is not permitted by applicable law. For purposes of any determination of good faith, the Director shall be presumed to have acted in good faith, if he relied on information, opinions, reports or statements, including financial statements or other financial data prepared or presented by: (a) one or more officers or employees of the Company (or a subsidiary of the Company) whom the Director reasonably believes to be reliable and competent in the matters presented; (b) legal counsel, public accountants or other persons as to matters the Director reasonably believes are within the persons professional or expert competence; or (c) a committee of the board of directors of the Company of which the Director is not a member, if the Director reasonably believes such committee merits confidence; provided, however, the Director shall not be presumed to be acting in good faith, if he has actual knowledge concerning the matter in question that makes such reliance unwarranted.
Section 11. Letter of Credit . Unless to do so would constitute a breach of any loan agreement or indenture or any other material agreement binding on the Company, upon the occurrence of a Change in Control of the Company, the Company, upon written request of a Director then involved in a Proceeding, shall obtain an irrevocable standby letter of credit naming the Director as the sole beneficiary in an appropriate amount to cover the estimated Expenses of fully contesting such Proceeding which are to be advanced to the Director hereunder, but not less than $500,000, issued by a bank or other financial institution having assets in excess of $100,000,000 and containing terms and conditions reasonably satisfactory to the Director (the Letter of Credit ). The Letter of Credit shall provide that the Director may from time to time draw amounts thereunder to pay such Expenses as incurred upon presentation to the issuer thereof of (i) copies of the Directors written affirmations and written undertaking and the written opinion of his counsel required under Section 3 above and (ii) a written certification personally signed by or on behalf of the Director that the Director has made demand
4
upon the Company for the amount he is seeking under the Letter of Credit and that the Company has refused to pay such amount to the Director and that the Director believes in good faith that he is entitled to such amount under the terms of this Agreement. Once the Company has obtained the Letter of Credit required by this Section 11, and continuing for the duration of this Agreement as set forth in Section 15, the Company shall renew the Letter of Credit or obtain a substitute letter of credit meeting the criteria specified above so that the Letter of Credit shall always have at least one year of its term remaining.
Section 12. Contribution . If full indemnification as provided in Section 2 hereof may not be paid to the Director because such indemnification is prohibited by law, then in any Proceeding in which the Company is jointly liable with the Director (or would be if joined in such Proceeding) the Company shall contribute to the amount of Liability and Expenses incurred by the Director for which indemnification is not available in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Director on the other hand from any transaction from which such Proceeding arose and (ii) the relative fault of the Company and the Director, as well as any other relevant equitable considerations.
Section 13. Securities Act Liabilities . The Director understands and agrees that with respect to certain liabilities incurred under the Securities Act of 1933, as amended, and the rules and regulations thereunder (the Securities Act ), the Companys obligations hereunder may be subject to undertakings contained in various registration statements filed by it pursuant to the Securities Act, as those undertakings relate to the possible need for court review of indemnification for such liabilities.
Section 14. Subrogation . The Company shall be subrogated to the extent of any payment to the Director under this Agreement to all of the rights of recovery of the Director with respect to such payments against third parties (including, without limitation, the insurer under any Liability Insurance policy, if applicable). The Director shall do everything reasonably necessary to secure such rights, including the execution of such documents as may be necessary or desirable to enable the Company to bring suit to enforce such rights.
Section 15. Duration of Agreement . This Agreement shall continue in effect during the period Director is a director of the Company and shall continue until the final disposition of all Proceedings for Indemnifiable Events, whether or not such Proceedings are instituted prior to Director ceasing to serve as a director of the Company.
Section 16. Period of Limitations . No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any affiliate of the Company against the Director, the Directors spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, or such longer period as may be required by state law under the circumstances. Any claim or cause of action of the Company or its affiliate shall be extinguished and deemed released unless asserted by the timely filing and notice of a legal action within such period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, the short period shall govern.
5
Section 17. Consent to Jurisdiction . The Company and the Director each irrevocably consent to the jurisdiction of the courts of the State of Tennessee for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the courts of the State of Tennessee.
Section 18. Severability . The provisions of this Agreement shall be severable in the event any of the provisions hereof are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law and, to the fullest extent possible, shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
Section 19. Notices . All notices, requests, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand and receipted for by the party to whom such notice or other communication shall have been directed or if mailed by certified registered mail with postage prepaid or if delivered by a private express package or similar service providing receipt against delivery. All such notices and other communications shall be deemed received on the earlier of actual receipt or the third business day after the date on which it is so delivered or mailed:
If to the Director to:
or to such other address as may be furnished to the Company by the Director by notice similarly given; or
If to the Company to:
J. Alexanders Holdings, Inc.
3401 West End Avenue, Suite 260
Nashville, Tennessee 37203
Attention: Chief Financial Officer
or to such other address as may be furnished to the Director by the Company by notice similarly given.
Section 20. Governing Law. This Agreement shall be governed by, and be construed and enforced in accordance with, the laws of the State of Tennessee applicable to contracts made and to be performed in such State without giving effect to the principles of conflicts of laws.
Section 21. Changes in Law . To the extent that a change in applicable law (whether by statute or judicial decision) shall permit broader indemnification or advancement of Expenses than is provided under the terms of the organizational documents of the Company and this Agreement, the Director shall be entitled to such broader indemnification and advancement, and this Agreement shall be deemed to be amended to such extent.
6
Section 22. Binding Effect . This Agreement shall be binding upon and inure to the benefit of and be enforceable by and against the parties hereto and their respective successors and assigns, including without limitation any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company and the spouse, heirs and personal representatives of the Director. The Company shall require any successor to all or substantially all of the business or assets of the Company, by written agreement in form and substance satisfactory to the Director, to expressly assume this Agreement.
Section 23. Subsequent Amendments . No amendment, termination or repeal of any provision of the Charter or Bylaws of the Company, or any respective successors thereto, or of any relevant provision of any applicable law, unless in the case such amendment or change in law permits the Company to provide broader indemnification rights than were permitted prior thereto, shall affect or diminish in any way the rights of the Director to indemnification, or the obligation of the Company, arising under this Agreement, whether the alleged actions or conduct of the Director giving rise to the necessity of such indemnification arose before or after any such amendment, termination or repeal. A Directors rights to indemnification and advancement under this Agreement and the Companys Bylaws shall vest as of the date he became or becomes a director of the Company.
Section 24. Modification and Waiver . This Agreement supersedes in its entirety any existing or prior agreement between the Company (including any of its subsidiaries (such subsidiaries to include any entity that will become a subsidiary of the Company in connection with the Spin-off (as defined below) or their predecessors) and the Director pertaining to indemnification and advancement rights. No supplement, modification, amendment, termination or assignment of this Agreement shall be effective unless in writing signed by both parties hereto. No waiver of any provisions of this Agreement shall be binding unless executed in writing by the party making the waiver.
Section 25. Definitions .
(a) Change in Control means a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, provided that, without limitation, such a change in control shall be deemed to have occurred if and when (i) any person (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a beneficial owner, directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Companys then outstanding securities or (ii) individuals who are members of the board of directors of the Company immediately prior to a meeting of the shareholders of the Company involving a contest for the election of directors do not constitute a majority of the board of directors following such election. Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred prior to, or as a result of, the spin-off of the Company via distribution of shares of the capital stock of the Company pursuant to an effective registration statement filed under the Exchange Act (the Spin-off ).
(b) Expenses shall include all reasonable attorneys fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or
7
expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating or being or preparing to be a witness in a Proceeding. Expenses shall also include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. In addition, Expenses shall include any expenses of establishing a right to indemnification.
(c) Indemnifiable Event means any event or occurrence that takes place either prior to or after the execution of this Agreement, related to the fact that the Director is or was a director of the Company, or while a director is or was serving at the request of the Company as a director of another foreign or domestic corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise, or was a director of a foreign or domestic corporation that was a predecessor corporation of the Company or another enterprise at the request of such predecessor corporation, or related to anything done or not done by the Director in any such capacity, whether or not the basis of the Proceeding is alleged action in an official capacity as a director or in any other capacity while serving as director of the Company, as described above.
(d) Liability means the obligation to pay a judgment, settlement, penalty or fine (including an excise tax or penalty assessed with respect to an employee benefit plan).
(e) Proceeding means any threatened, pending or completed action, suit, arbitration, alternative dispute mechanism, inquiry, administrative or legislative hearing, investigation or any other actual, threatened or completed proceeding, including any and all appeals, whether conducted by the Company or any other party, whether civil, criminal, administrative, investigative, or other, whether formal or informal, and in each case whether or not commenced prior to the date of this Agreement, that relates to an Indemnifiable Event.
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above.
J. ALEXANDERS HOLDINGS, INC. | ||
By: | ||
Name: | ||
Title: | ||
DIRECTOR: | ||
9
Exhibit 10.5
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT (Loan Agreement or Agreement) is made and entered into as of this 9th day of December, 2014, by and between J. ALEXANDERS, LLC, a Tennessee limited liability company (herein called Borrower) and PINNACLE BANK (herein called Lender).
W I T N E S S E T H:
WHEREAS, Lender and Borrower are parties to a certain Loan Agreement dated September 3, 2013 (as may have been amended, restated, modified or supplemented from time to time, the Existing Loan Agreement) wherein Lender loaned Borrower funds for the purposes therein stated, said funds were evidenced by (i) a promissory note in the original principal amount of $15,000,000.00 (together with any and all extensions, renewals and modifications thereof, the Term Note) and (ii) a promissory note in the maximum principal amount of $1,000,000.00 (together with any and all extensions, renewals and modifications thereof the Revolving Note; and together with the Term Loan Note, the Existing Notes); and
WHEREAS, Borrower has applied to Lender for additional financing and establishing a draw-down development line of credit to fund the land acquisition and the construction and/or leasehold improvements for new J. Alexanders and/or Stoney River restaurants and Lender has agreed to provide such financing, subject to the terms and conditions hereinafter contained; and
WHEREAS, the Borrower has requested and Lender has agreed to amend and restate the Existing Loan Agreement in its entirety, it being understood that nothing contained herein shall be deemed a satisfaction or novation of the indebtedness and obligations created or evidenced by the Existing Loan Agreement or the Existing Notes as of the date hereof.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lender and Borrower covenant and agree as follows:
I. THE LOANS
1.1 | Loan. Subject to the terms and provisions of this instrument, Lender has made or agrees to make available to Borrower: |
1.1.1. | A term loan in the original principal amount of FIFTEEN MILLION AND NO/100 ($15,000,000.00) DOLLARS, solely for the purposes specifically enumerated in the Existing Loan Agreement and certain costs and expenses related thereto (sometimes referred to as the Term Loan). The Term Loan has been fully funded prior to the date hereof. The Term Loan is evidenced by the Term Note. |
1.1.2. | A revolving line of credit in the maximum principal amount of ONE MILLION AND NO/100 ($1,000,000.00) DOLLARS, to be used for general corporate purposes, including working capital needs of Borrower and its subsidiaries, by advancing said sum to Borrower on a revolving basis from time to time at Borrowers request pursuant to the provisions herein contained (the Line of Credit). The Line of Credit is evidenced by the Revolving Note. |
1.1.3. | A new revolving line of credit in the maximum principal amount of FIFTEEN MILLION AND NO/100 ($15,000,000.00) DOLLARS, solely for the purposes specifically enumerated herein and to pay certain costs and expenses related thereto, by advancing said sum to Borrower on a revolving basis from time to time at Borrowers request pursuant to the provisions herein contained (the Development Loan). The Development Loan shall be evidenced by a certain Promissory Note in the maximum principal amount of $15,000,000.00, in form and content acceptable to Lender, which shall be executed by Borrower and payable to the order of Lender (together with any and all extensions, renewals and modifications thereof, the Development Note). |
The Term Loan, the Line of Credit and the Development Loan are sometimes hereinafter collectively referred to as the Loans). The Term Note, the Revolving Note and the Development Note are hereinafter collectively sometimes referred to as the Notes.
J. ALEXANDERS HOLDINGS, LLC, a Delaware limited liability company, J. ALEXANDERS RESTAURANTS, LLC, a Tennessee limited liability company, J. ALEXANDERS RESTAURANTS OF KANSAS, LLC, a Kansas limited liability company, J. ALEXANDERS OF TEXAS, LLC, a Texas limited liability company, JAX REAL ESTATE, LLC, a Delaware limited liability company, JAX RE HOLDINGS, LLC, a Delaware limited liability company, and JAX REAL ESTATE MANAGEMENT, LLC, a Delaware limited liability company (herein collectively called Guarantors), shall unconditionally guarantee payment of the Loan, and all indebtedness now or hereafter owing to Lender by Borrower, and shall execute instruments in such form as may be reasonably required by Lender to accomplish such guaranties. The Guarantors herein stated include all of the wholly-owned subsidiaries of Borrower that own Collateral (as hereinafter defined).
1.2 Term. The term of the Loans shall be as set forth in the Notes and this Loan Agreement.
1.3 Interest. The Loans shall bear interest at annual rates as set forth in the Notes. Interest accruing under the Notes shall be computed on the basis of a three hundred sixty (360) day year. After default or maturity, interest and penalties shall accrue as set forth in the Note and this Loan Agreement. Notwithstanding anything herein to the contrary, in no event shall the interest rate exceed the maximum rate allowed by applicable law.
1.4 Repayment Schedule. Payment of all obligations arising under the Loans shall be made as set forth in the Note and this Loan Agreement.
2
1.5 Commitment Fees; Non-Use Fee. Upon the closing of the Development Loan, Borrower shall pay to Lender an upfront commitment fee equal to 0.25% of the maximum principal amount of the Development Loan, payable in full in cash at closing. Borrower shall also pay to Lender an unused fee equal to 0.25% per annum of the average, unused portion of the Line of Credit and the Development Loan until the termination of the Line of Credit and the termination of the Development Loan, payable quarterly in arrears.
1.6 Place of Payments. All payments of principal and interest shall be made at 150 Third Avenue South, Suite 800, Nashville, TN 37201, or at such other place, or places, as Lender may direct by notice in writing to Borrower from time to time.
1.7 Prepayment. Prepayment of principal due under the Loans made hereunder may be made at any time without premium or other prepayment charge.
1.8 Disbursement of Loans. The Term Loan has been disbursed in full. Funds shall be disbursed by Lender under the Revolving Note and the Development Note for the purposes provided herein on a revolving basis from time to time at Borrowers request, and subject to and in accordance with the conditions and requirements contained herein, as follows:
(a) Lender shall not be obligated to disburse any portion of the Line of Credit and the Development Loan other than closing costs of the Loans approved by Lender, unless and until, at Lenders option, the following conditions precedent shall have been satisfied:
(i) Lender shall have received all of the Loan Documents and Security Instruments, as hereinafter defined, in form reasonably satisfactory to Lender, including, but not limited to Borrower and the appropriate parties executing one or more modification agreements (individually a Modification Agreement and collectively the Modification Agreements) amending and modifying the loan documents dated September 3, 2013, which among other things, include certain security documents wherein the indebtedness under the Development Loan shall be secured by the Collateral (as hereinafter defined).
(ii) Borrower and Guarantors shall have provided to Lender certified resolutions appropriately authorizing the transactions contemplated herein and designating an authorized officer or other agent of Borrower to execute all Loan Documents to which Borrower is a party.
(iii) Lender shall have received financing statements in form acceptable to Lender to be filed with the Secretary of State of Tennessee, and such other locations as Lender may reasonably require, perfecting Banks security interest in the Collateral (as hereinafter defined), and any waivers or releases reasonably required by Lender.
(iv) Lender shall have received a copy of certified articles of organization and certificates of existence of Borrower and Guarantors from the Tennessee Secretary of State and/or such other jurisdictions as Lender may reasonably require, together with copies of the bylaws of Borrower and each corporate Guarantor.
3
(v) Lender shall have received UCC-11 searches issued by the Secretary of State of Tennessee and such other jurisdictions as Lender may reasonably require.
(vi) Borrower shall be in material compliance with all covenants, warranties and representations to which Borrower is obligated under this Loan Agreement.
(vii) No Event of Default shall then be in existence hereunder or would be caused by any such disbursement.
(viii) Borrower shall have furnished to Lender a detailed list of all of the corporate and/or limited liability company entities owned by Borrower, with evidence of any indebtedness currently outstanding with Borrower and/or Guarantors.
Interest shall accrue on sums advanced only from the date of disbursement of such sums.
(b) Advances under the Development Loan shall be subject to the following additional terms and conditions:
(i) Prior to advancing funds under the Development Loan, Borrower shall be in compliance with all the existing financial covenants.
(ii) Borrower may, at its option upon completion of any project financed under the Development Loan, request that Lender term-out advances made in respect of any such projects (a Term-Out Option). Thereafter, principal and interest payments in respect of such advances (a Conversion Loan) shall be due and payable monthly based upon a 180-month amortization for fee simple projects and a 60-month amortization for leasehold projects, with all amounts advanced in respect of a particular project being due and payable five (5) years from the beginning of principal and interest amortization (the Conversion Date).
(iii) Upon the Conversion Date for a particular project, all amounts advanced under Development Loan in respect of such project shall be available to be reborrowed under the Development Loan, provided Borrower has provided the documents described in Section 1.8 of this Agreement and further provided that no Event of Default has occurred and is continuing.
(iv) Borrower will pay all reasonable legal expense and recording cost/tax associated with perfecting Lenders a first priority security interest in the 3-J. Alexanders locations not currently financed with Lender to the extent required to be provided as Collateral pursuant to Section 5.17 of this Agreement, in addition to paying any and all reasonable legal expense and recording cost/tax associated with perfecting Lenders first priority security interest in the Collateral herein described.
(v) Borrower shall deliver or cause to be delivered to Lender a preliminary budget for operation of any new restaurant within thirty (30) days after the disbursement to Borrower of the initial disbursement to build said restaurant. In addition, in the
4
event Borrower exercises a Term-Out Option with respect to a particular project, Borrower shall deliver to Lender or cause to be delivered to Lender, such documentation as Lender may reasonably request in respect of such project. Such documentation shall include but not be limited to a current appraisal, title commitment, landlords consents and estoppels (for leasehold projects) any environmental report and any other necessary reasonably required documents, all of which shall be provided to Lender in a timely manner but not less than thirty (30) days prior to the anticipated closing of the Conversion Loan. To clarify, upon the Conversion Date, the subject Conversion Loan shall no longer be secured by the Collateral, but shall be secured by a mortgage lien on the fee simple or leasehold interest in the subject restaurant, the construction of which was financed with the proceeds thereof. In addition, with respect to any permanent loan secured by real property, the original principal amount of such permanent loan will be the lesser of (a) Borrowers total real estate costs, or (b) 80% of the appraised property value. As part of the condition to a permanent loan being made, the Guarantors shall agree to continue to guarantee any such permanent loan.
1.9 Collateral. As collateral for the Secured Obligations, as hereinafter defined, including the Loan, Borrower shall execute and deliver, or cause to be executed and delivered to Lender, the following prior to or at closing hereunder:
(a) A mortgage/deed of trust lien on nine (9) certain real estate assets owned by JAX Real Estate, LLC that each has a J. Alexander Restaurant located thereon, (Real Estate Collateral). Except for Permitted Encumbrances (as hereinafter defined), the Real Estate Collateral will be free and clear of other liens, claims and encumbrances. It is understood, however, that the Lender has an existing security interest in said properties as set forth in the Existing Loan Agreement, pursuant to which the Lender obtained a first priority lien on the Real Estate Collateral to secure the Existing Notes.
(b) Except as set forth herein, in addition to the Real Estate Collateral herein described, Lender shall receive a first priority perfected security interest in substantially all existing and after-acquired tangible personal property of Borrower and Guarantors, located at the Real Estate Collateral. As used herein Collateral shall mean all tangible personal property located at the Real Estate Collateral and the Real Estate Collateral. The Collateral will be free and clear of other liens, claims and encumbrances, except Permitted Encumbrances. As used herein Permitted Encumbrances shall mean (i) matters shown on the title insurance commitments delivered to Lender in connection herewith, (ii) subordinate judgment liens that are the subject of an ongoing appeal, (iii) liens in favor of Lender, (iv) liens securing purchase money indebtedness or capital lease obligations, and (v) liens for taxes not yet delinquent or being contested in good faith, (vi) claims of materialmen, mechanics, carriers, warehousemen, processors or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business to the extent limited to the property or assets relating to such contract, and (vii) liens in favor of a landlord to secure Borrowers or its subsidiaries obligations to pay rent. It is understood, however, that the Lender has existing security interest in said properties as set forth in the Existing Loan Agreement, pursuant to which the Lender obtained a first priority lien on the Collateral to secure the Existing Notes (subject to Permitted Encumbrances).
5
(c) Assignment and Security Agreement, assigning and granting a security interest to Lender in all items therein described and other rights and matters as provided therein arising from or with respect to the Collateral, together with Financing Statements to evidence and perfect such assignment and security interest, all of which shall be in form and substance reasonably satisfactory to Lender in all respects, and which shall be first priority encumbrances upon the property, rights and interests which are the subject of such Assignment and Security Agreement and Financing Statements (subject to Permitted Encumbrances).
(d) Guaranties of the Guarantors, in form and substance reasonably satisfactory to Lender executed by the Guarantors.
The foregoing instruments and documents, and any other instruments and documents now or hereafter securing the Secured Obligations, are herein sometimes collectively called the Security Instruments. The Security Instruments, together with the Notes, this Loan Agreement, and any other instruments and documents now or hereafter evidencing, securing or regulating the Loans or Secured Obligations are herein sometimes collectively called the Loan Documents.
Without limiting any of the provisions thereof, the Security Instruments shall secure the following (the Secured Obligations):
(a) The full and timely payment of the indebtedness evidenced by the Notes, together with interest thereon, and all extensions, modifications and renewals thereof.
(b) The full and prompt performance of all the obligations of Borrower to Lender under the Loan Documents.
(c) The full and prompt payment of all costs and expenses of whatever kind or nature incident to the collection of any indebtedness evidenced by the Notes, the enforcement or protection of the Security Instruments, or the exercise by Lender or any rights or remedies of Lender with respect to any indebtedness evidenced by the Notes, including but not limited to reasonable attorney fees incurred by Lender in connection therewith, all of which Borrower agrees to pay upon demand.
(d) The full and prompt payment and performance of any and all other indebtedness and obligations of Borrower to Lender, whether direct, indirect, contingent or matured, and whether incurred as endorser, guarantor, maker, surety or otherwise, whether now existing or hereafter arising.
1.10 Collateral Substitution. In the event Borrower shall elect to close or dispose of a restaurant that is part of the Real Estate Collateral, Lender shall release its mortgage lien on said Real Estate Collateral and any related personal property, so long as Borrower shall provide Lender with a mortgage lien on a substitute property reasonably satisfactory to Lender (which shall be subject to terms, conditions, and documentation reasonably satisfactory to Lender).
1.11 Further Documents and Actions. Borrower and Guarantors shall execute such instruments as Lender may reasonably require from time to time (which shall be in such form and substance as Lender may reasonably require), and shall take such other actions as Lender may reasonably require from time to time, to assure the full realization by Lender of the security of all the Collateral.
6
II. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as follows:
(a) Neither this Loan Agreement, nor any document, financial statement, report, notice, schedule, certificate, statement or other writing which has, or shall be, furnished to Lender by or on behalf of Borrower hereunder contains any untrue statement of a material fact, or omits to state a fact material to this Loan Agreement, or the Loans to be made hereunder.
(b) Borrower has full power and authority to consummate the transactions contemplated hereby.
(c) Borrower and each Guarantor have, and shall have, the authority and capacity to execute and deliver the Loan Documents to which it is a party.
(d) As of the date hereof, there is no default, under any instrument or document to which Borrower or any Guarantor is a party, which default is reasonably likely to cause a material adverse effect upon Borrower and Guarantors financial condition taken as a whole (a Material Adverse Effect). Neither the execution nor delivery of this Loan Agreement, or any of the Loan Documents, nor compliance with their terms and provisions, will conflict with or be in violation of any applicable law, regulation, ordinance, court order, injunction, writ, or decree which conflict is reasonably likely to result in a Material Adverse Effect.
(e) As of the date hereof there is no pending or, to Borrowers knowledge, threatened judicial, administrative, or arbitrational action or proceeding affecting Borrower, or any Guarantor before any court, governmental agency, or arbitrator which relates in any adverse manner to any of the transactions contemplated by this Loan Agreement, or which if adversely determined, is reasonably likely to result in a Material Adverse Effect. Neither Borrower, nor any Guarantor has any material contingent liability not disclosed in the financial information heretofore furnished to Lender, which is reasonably likely to result in a Material Adverse Effect.
(f) The funds disbursed under the Loans shall be used for no purpose other than the purposes stated above and for working capital needs and other general corporate purposes.
(g) The financial statements which have been heretofore delivered to Lender by or on behalf of Borrower and Guarantors, and all financial statements which shall be delivered hereunder by Borrower or Guarantors, or such parties, to Lender, during the term of this Loan Agreement, and until payment of the Loans made hereunder, fairly present, and shall fairly present, in all material respects, the financial condition and results of operations of the Borrower as of and for the periods represented.
7
(h) Borrower is a Tennessee limited liability company, validly existing, and in good standing under the laws of the State of Tennessee and has the power to own its properties, to carry on its business as now conducted, and to enter into and perform its obligations under this Loan Agreement and the other Loan Documents. Borrower is duly qualified to do business and in good standing in any other state in which a failure to be so qualified could reasonably be expected to have a Material Adverse Effect. The parties executing the Loan Documents on behalf of Borrower are duly authorized to act on its behalf.
(i) Guarantors are validly existing and in good standing under the laws of the states of their organization and have the power to guarantee the indebtedness contemplated hereby, to carry on business as now conducted, and to enter into and perform obligations under this instrument and the other Loan Documents. Guarantors are duly qualified to do business and in good standing in any other state in which a failure to be so qualified could reasonably be expected to have a Material Adverse Effect. The parties executing the Loan Documents on behalf of Guarantors are duly authorized to act on behalf of Guarantors.
(j) As of the date hereof, Borrowers principal office and chief place of business is located at 3401 West End Avenue, Suite 260, Nashville, Tennessee 37203. Borrower will give Lender thirty (30) days notice of any change in its principal office or chief place of business.
III. COVENANTS OF BORROWER
3.1 Loan Documents. Borrower and Guarantors shall execute and deliver, or cause to be executed and delivered, to Lender for the Loans to be made hereunder, prior to disbursement thereof, all of the Loan Documents, including but not limited to this Loan Agreement, the Notes and Security Instruments, all in form and substance reasonably satisfactory to Lender in all respects.
3.2 Additional Documentation. Borrower shall deliver to Lender charters, bylaws, certifications, affidavits, good standing certificates, resolutions, opinions of counsel, and such other documentation as may be reasonably necessary in Lenders judgment, to authorize the execution and delivery of any of the Loan Documents or to carry out the provisions of this Loan Agreement.
3.3 Liens. Borrower shall for the term of this Loan Agreement, and until payment of the Loan made hereunder, keep the Collateral free and clear of any and all liens except Permitted Encumbrances and shall pay all taxes (if any) which may be charged against any part or all of the Collateral, prior to the time such become delinquent. However, Borrower shall not be required to pay any such lien claim, tax or assessment deemed by Borrower to be excessive or invalid, or which may be otherwise contested by Borrower, for so long as Borrower shall in good faith object to or otherwise contest the validity of the same by appropriate legal proceeding, and provided further that Borrower, upon demand by Lender, as protection and indemnity against loss or damage resulting therefrom, shall deposit, either in cash, bond, or other collateral acceptable to Lender, an amount sufficient in Lenders reasonable judgment to cover the claim for such unpaid amounts, together with any costs or penalties which may thereafter accrue. Borrower shall pay, in any event, any such items prior to any judicial or nonjudicial sale to enforce any such lien.
8
3.4 Financial Statements and Other Information. Borrower shall provide Lender with quarterly company prepared consolidating and consolidated financial statements and a quarterly loan covenant compliance report within 45 days after the end of the first three (3) fiscal quarters of each fiscal year. Borrower shall also provide Lender with an annual audited consolidated financial statement and a loan covenant compliance report within 120 days of Borrowers fiscal year-end.
3.5 Additional Financial Covenants. Financial covenants will be calculated on a trailing four quarters basis (and for J. Alexanders Holdings, LLC, and its subsidiaries on a consolidated basis) and will consist of:
(a) Fixed Charge Coverage Ratio. Borrower shall maintain a Fixed Charge Coverage ratio of not less than 1.25 to 1.0. Fixed Charge Coverage Ratio shall be measured at quarter-end based on a four-quarter trailing basis. Fixed Charge Coverage Ratio shall be defined as the ratio of (A) the sum of Net Income (excluding the effect of any extraordinary or non-recurring gains or losses including any asset impairment charges, restaurant closing expenses (including lease buy-out expenses), changes in valuation allowance for deferred tax assets and non-cash deferred income tax benefits and expenses and up to $1,000,000 (in the aggregate for the term of the Loans) in uninsured losses) plus depreciation and amortization plus interest expenses plus rent payments plus non-cash FASB 123R items, i.e. stock based compensation and non-cash expenses related to a profits interest plan, plus other non-cash expenses or charges, and plus expenses associated with the initial unwritten public offering of equity securities of J. Alexanders Holdings, Inc. (the IPO), regardless of whether the IPO occurs or is delayed, minus the greater of i) actual total store maintenance capital expenditures (excluding major remodeling or image enhancements), or ii) the total number of Borrowers stores operating for at least 18 months multiplied by $40,000 to (B) the sum of interest expense plus rent payments plus current maturities of long term debt and capital leases.
(b) Maximum Adjusted Debt to EBITDAR Ratio. Borrower shall maintain an Adjusted Debt to EBITDAR Ratio of not more than 4.0 to 1.0. Maximum adjusted Debt to EBITDAR shall be measured at quarter-end based on a four quarter trailing basis. Maximum Adjusted Debt to EBITDAR Ratio is defined as the ratio of (A) Total Funded Debt minus invested Funds plus rent payments multiplied by 7 , to (B) EBITDAR. Invested Funds is defined as short term, liquid investments such as money markets with maturities of less than one year in length, and cash and cash equivalents; provided that investments into any joint venture or any endeavor not consistent with Borrowers core restaurant operating business without consent of Lender shall be excluded. EBITDAR shall be defined as the sum of: Net Income for such period (excluding the effect of any extraordinary or non-recurring gains or losses including any asset impairment charges, restaurant closing expenses (including lease buy-out expenses), changes in valuation allowance for deferred tax assets and non-cash deferred income tax benefits and expenses and up to $1,000,000.00 (in the aggregate for the term of the Loans) in uninsured losses) plus an amount which, in the determination of Net Income for such period has been deducted for (i) interest expense for such period; (ii) total federal, state foreign or other income taxes for such period; (iii) all depreciation and amortization for such period; (iv) rent payments; and (v) non-cash FASB 123R items, i.e. stock based compensation, and non-cash expense related to a profits interest plan, plus any other non-cash expenses or charges, and plus expenses associated with the IPO, regardless of whether the IPO occurs or is delayed, all as determined with GAAP.
9
3.6 Notice of Claims. Borrower shall promptly notify Lender of any litigation exceeding $500,000.00 by any third party which may arise with respect to the Collateral, not covered by insurance subject to customary deductibles.
3.7 Insurance. If such insurance is obtainable, Borrower shall furnish to Lender insurance policies with companies, and coverage and amounts, reasonably satisfactory to Lender insuring the Collateral against loss or damage by fire and other casualty, and such other risks as may be reasonably requested by Lender, said policies to insure the full replacement cost of such Collateral. Each such policy shall be maintained in full force and effect until the Loans have been paid in full.
3.8 Ownership of Collateral. Except as set forth herein and the other Loan Documents, Borrower shall at all time until final payment of the Loans be the true and lawful owner of all the Collateral.
3.9 Assignments and Participations. Lender will have the right at any time to sell and assign interests in the Loans in accordance with customary terms, including prior consent of the Borrower (not to be unreasonably withheld), which consent shall not be required if any Event of Default exists.
3.10 Deposit Accounts. Borrower agrees to maintain the vast majority of its treasury management depository accounts and treasury management account balances with Lender.
3.11 | Dividends. |
(a) Borrower shall be permitted to pay tax dividends to members.
(b) In addition, as long as a default has not occurred under the Loan Documents or would be caused thereby, Borrower shall be permitted to pay dividends up to the Available Basket Amount, as determined from time to time, defined as follows, Available Basket Amount means, as of the closing date, $5,725,000, which amount shall be (a) increased annually on the first day of Borrowers fiscal year by an amount equal to $2,500,000 plus 25% of consolidated net income for the immediately preceding fiscal year, beginning with the fiscal year ending December 28, 2014, and (b) reduced by the aggregate amount of restricted payments made during the period commencing September 3, 2013 through and including the relevant date of determination and designated by Borrower and Lender to be applied against the Available Basket Amount.
(c) Borrower shall be prohibited from issuing or declaring dividends without Lenders written permission until the Loans are fully repaid or expired; except as otherwise noted, in (a) and (b) above.
3.12 Subordination. Lender and Fidelity National Financial, Inc. (FNF) acknowledge they have previously entered into a subordination agreement to subordinate to Lenders Loans dated September 3, 2013 (the September 3, 2013 Loan Documents) a $20,000,000.00 note (Subordinated Note) owed by J. Alexanders Holdings, LLC to FNF, wherein it was agreed that so long as there is no Event of Default as described in the September 3, 2013 Loan Documents,
10
Borrower may pay accrued interest related to this Subordinated Note. A copy of this Subordinated Note shall be delivered to Lender prior to the Closing. The Lender and FNF agree that this Subordinate Note shall also be subordinated to the Development Loan on the same terms and conditions as set forth in the said September 3, 2013 Loan Documents and both parties shall take whatever legal action they deem necessary to carry out the intent herein stated, provided however, so long as no Event of Default exists hereunder, the Subordinated Note may be prepaid in full with the proceeds from the IPO. Further, the Borrower shall have the privilege of prepaying up to Ten Million and no/100 Dollars ($10,000,000.00), plus any accrued interest, toward the indebtedness evidenced by the Subordinated Note regardless of whether the IPO has occurred.
IV. EVENTS OF DEFAULT
Each of the following shall constitute an Event of Default hereunder:
(a) If Borrower shall fail to pay any installment under the Loans within five (5) days of Lenders written notice to Borrower; or
(b) If Borrower shall fail to pay sums due under the Loans at maturity; or
(c) If Borrower or any of the Guarantors shall fail to keep and perform any other covenant or provision contained in this Loan Agreement, or in any of the Loan Documents, or if at any time any representation or warranty made by Borrower or any of the Guarantors, herein or otherwise in connection with the Loans made hereunder, shall be materially incorrect, and such failure shall continue unremedied for a period of thirty (30) days following the earlier of the date an executive officer of Borrower first has actual knowledge of such breach or failure, or the date Borrower is given written notice from Lender to Borrower specifying such breach or failure. If such failure cannot be cured by Borrower with reasonable diligence within such thirty (30) day period, then such period shall be extended to a total of forty-five (45) days provided that within such thirty (30) day period Borrower shall commence to cure such breach or failure and shall continue to proceed thereafter with reasonable diligence; or
(d) If Borrower or any of the Guarantors (i). shall generally not pay or shall be unable to pay its or their debts as such debts become due; or (ii) shall make a general assignment for the benefit of creditors or petition or apply to any tribunal for the appointment of a custodian, receiver or trustee for such party, the Collateral or a substantial part of such partys assets; or (iii) shall commence any proceeding under bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any petition or application filed or commenced against it or them in which an order for relief is entered or an adjudication or appointment is made; or (v) shall indicate, by any act or omission, such partys consent to, approval of or acquiescence in any such petition, application, proceeding, or order for relief or the appointment of a custodian, receiver or trustee for such party, the Collateral or a substantial part of such partys assets; or (vi) shall suffer any custodianship, receivership or trusteeship to continue undischarged for a period of thirty (30) days or more; or
(e) If Borrower or any of the Guarantors shall be liquidated or dissolved (provided, however, any Guarantor may be liquidated, dissolved or merged into another Guarantor or Borrower); or
11
(f) If there is a material default in any other material indebtedness or obligations now or hereafter owing by Borrower or Guarantors, to Lender, subject to applicable cure provisions.
In any such event, Lender may, in addition to all remedies available to Lender under the terms of any of the Loan Documents, or otherwise by applicable law, take any or all of the following actions, concurrently or successively: (i) declare the indebtedness evidenced by the Note delivered pursuant to this Loan Agreement to be immediately due and payable without presentment, demand, or other notice, all of which are expressly waived, unless notice is specifically provided herein, or elsewhere in the Loan Documents, (ii) terminate the obligation of Lender to extend credit of any kind hereunder, whereupon the obligation of Lender to make additional advances hereunder shall terminate, (iii) acquire possession of the Collateral.
Borrower shall be liable to Lender for all sums paid or expended by Lender during the occurrence of an Event of Default in connection with the Collateral or otherwise in connection with this Loan Agreement, and all such payments made or liabilities incurred by Lender hereunder, of any kind whatsoever, shall be payable upon demand, and all of the foregoing, shall be deemed to constitute advances under this Loan Agreement, and the Notes, and shall be additional indebtedness secured by the Security Instruments.
V. GENERAL PROVISIONS
5.1 Setoff. In addition to all rights of setoff, Lender shall have upon the occurrence of an Event of Default hereunder the right to appropriate and apply to the payment of the Loans outstanding hereunder, any and all balances, credits, deposits, accounts, money, or other property of Borrower or Guarantors then or thereafter held by or deposited with Lender.
5.2 Attorney Fees and Costs. Borrower shall be liable to Lender for all sums reasonably paid or incurred by Lender in connection with this Loan Agreement, the Loans made hereunder, the Collateral, whether paid or incurred by reason of any default hereunder, or in any of the Loan Documents, or otherwise, and such shall include, but shall not be limited to, the payment of all reasonable attorneys fees so paid or incurred. All such sums shall be payable by Borrower to Lender upon demand, and all of the foregoing shall constitute advances under this Loan Agreement. Borrower shall further pay to Lender all costs and expenses incurred by Lender, including, but not limited to, reasonable attorneys fees, in the preparation and consummation of this Loan Agreement, and the Loan made hereunder.
Borrower will pay all reasonable outside legal fees and UCC recording cost and search expenses incurred by the Lender relative to negotiation and document preparation (whether or not the contemplated transaction is closed and funded), and any and all reasonable legal fees and expenses incurred by Lender after the closing for any and all ongoing administrative, enforcement and collection expenses related to the Loans.
12
5.3 Remedies Cumulative. All remedies provided for in this Loan Agreement, or in any of the Loan Documents, shall be cumulative, and shall be in addition to all other remedies available to Lender by applicable law.
5.4 Inspection. Upon reasonable prior notice, Lender, its representatives and designees, shall have reasonable access to the books and records of Borrower with respect to the Collateral, and shall be entitled to copies of such records upon request. Borrower shall make such books and records available to Lender upon reasonable request. Upon reasonable prior notice, Lender shall be entitled to access to the Collateral for the purpose of inspecting the same, and in order to otherwise carry out the provisions of this Loan Agreement, or of any of the Loan Documents.
5.5 No Waiver. The failure of Lender to exercise any right or remedy granted under this Loan Agreement, any of the Loan Documents, or by applicable law, shall not be a waiver of Lenders right or rights to exercise any such right or remedy upon any subsequent default.
5.6 Captions. Captions used herein are for convenience only, and shall not be construed as limiting the construction of the provisions of this Loan Agreement.
5.7 Notice. Any and all notices permitted or required under this Loan Agreement, or any of the Loan Documents, shall be deemed given if hand-delivered, or mailed by United States registered or certified mail, postage prepaid, return receipt requested, to the following addresses:
If to Borrower, as follows: |
J. Alexanders, LLC | |
Attn: Mark Parkey, CFO | ||
3401 West End Avenue, Suite 260 | ||
Nashville, Tennessee 37203 | ||
with a copy to: |
Bass, Berry & Sims PLC Attn: Felix R. Dowsley, III |
|
150 Third Avenue S., Suite 2800 | ||
Nashville, TN 37201 | ||
and in the case of Lender: |
Pinnacle Bank | |
Attn: William W. DeCamp, Senior Vice President | ||
150 Third Avenue S., Suite 800 | ||
Nashville, Tennessee 37201 | ||
with a copy to: |
Gullett, Sanford, Robinson & Martin PLLC Attn: George V. Crawford, Jr. |
|
150 Third Avenue S., Suite 1700 | ||
Nashville, Tennessee 37201 |
or to such other address, or addresses, as either party may request in writing to the other from time to time. No notice to or demand on Borrower hereunder, in itself shall entitle Borrower to any other or further notice or demand in similar or other circumstances, or shall constitute a waiver of the rights of Lender to any other or further action in any circumstances without notice or demand.
13
5.8 Interest. Notwithstanding anything herein to the contrary, in no event shall interest charged under the Loans hereunder exceed the maximum rate allowed by applicable law. Interest shall be calculated on the basis of a three hundred sixty (360) day year.
5.9 No Liability. Except to the extent caused by Lenders negligence or willful misconduct, Borrower shall indemnify and hold harmless Lender from and against any and all liability, loss, and damage incurred by Lender in connection with this Loan Agreement.
5.10 Successors and Assigns. This Loan Agreement shall be binding upon the parties hereto, and their respective successors and assigns. However, no rights of Borrower hereunder may be assigned without the express prior written consent of Lender.
5.11 Severability. The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of the remaining provisions.
5.12 Entire Agreement, Amendment. This Loan Agreement, and the Loan Documents executed pursuant hereto shall constitute the entire agreement of the parties. Any additional provisions contained in the Loan Documents not contained herein shall be supplemental and in addition to the provisions hereof. This Loan Agreement may be modified or amended only by an instrument in writing executed by all parties hereto.
5.13 Applicable Law. The construction and validity of this Loan Agreement, and the Loans made hereunder, shall be governed by the law of the State of Tennessee, except to the extent that such may be pre-empted by applicable law or regulation of the United States of America governing the charging or receiving of interest.
5.14 Time of the Essence, Gender, Number. Time is of the essence with respect to this Loan Agreement, and all provisions and obligations hereof. As used herein, the singular shall refer to the plural, the plural to the singular, and the use of any gender shall be applicable to all genders.
5.15 Further Assurances. Borrower shall execute and deliver such additional instruments and documents and take such further actions, as may be reasonably requested by Lender from time to time to further evidence or perfect the rights of and obligations owing to Lender hereunder and to correct any errors or mistakes in the transactions evidenced hereby.
5.16 Counterparts. This Loan Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument.
5.17 Additional Collateral. In the event Lenders existing Term Loan No. 900000025 with Borrower remains outstanding six (6) months after the closing date of this Agreement, Lender will be entitled to a first priority security interest in three additional restaurants located at Plantation, Florida, Tampa, Florida and Atlanta, Georgia (New Collateral), subject to Permitted
14
Encumbrances Failure by Borrower to take or cause the action to be taken to have Lender receive a first priority security interest in said New Collateral within sixty (60) days after the expiration of such six month period shall be deemed an Event of Default.
5.18 Participation Agreement. Borrower and Lender acknowledge that Lender has committed to Borrower, that pursuant to the terms and conditions of this Agreement, and provided there is no default by Borrower or any of its affiliates in this Loan, Lender is obligated to loan to Borrower a total principal amount of $30,000,000.00 outstanding at any time. In the event Borrower requests that Lender make available amounts in excess of the said $30,000,000.00, Lender has the right to enter into a participation agreement with third parties (in consultation with Borrower) whereby the amount exceeding the said $30,000,000.00 is purchased by said third parties on such terms and conditions as set forth in said participation agreement. Notwithstanding the foregoing that the parties acknowledge that Lender is under no obligation to loan to Borrower or its affiliates any funds in excess of $30,000,000.00.
5.19 Guarantors. The Guarantors join in the execution of this Amended and Restated Loan Agreement for the purpose of acknowledging Guarantors obligations with respect to this Amended and Restated Loan Agreement, the Revolving Note, the Term Note, the Development Loan and the Existing Loan Agreement, and in addition any other instrument or document evidencing or securing all or any part of the Loans.
5.20 Amendment and Restatement. This Amended and Restated Loan Agreement constitutes an amendment and restatement of that certain Loan Agreement, dated September 3, 2013, by and among the Borrower, the Lender and the within named Guarantors.
The remainder of this page is left intentionally blank.
15
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Loan Agreement as of the date first above written.
BORROWER: | ||
J. ALEXANDERS, LLC, | ||
a Tennessee limited liability company | ||
By: |
/s/ Mark A. Parkey |
|
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
LENDER: | ||
PINNACLE BANK | ||
By: |
/s/ William W. DeCamp |
|
William W. DeCamp, Senior Vice President |
GUARANTORS: | ||
J. ALEXANDERS HOLDINGS, LLC, | ||
a Delaware limited liability company | ||
By: |
/s/ Mark A. Parkey |
|
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
J. ALEXANDERS RESTAURANTS, LLC, | ||
a Tennessee limited liability company | ||
By: |
/s/ Mark A. Parkey |
|
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer |
16
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Loan Agreement as of the date first above written.
BORROWER: | ||
J. ALEXANDERS, LLC, | ||
a Tennessee limited liability company | ||
LENDER: | ||
PINNACLE BANK | ||
By: |
/s/ William W. DeCamp |
|
William W. DeCamp, Senior Vice President |
GUARANTORS: | ||
J. ALEXANDERS HOLDINGS, LLC, | ||
a Delaware limited liability company | ||
By: |
/s/ Mark A. Parkey |
|
Name: |
Mark A. Parkey |
|
Title: |
Vice President and Chief Financial Officer |
|
J. ALEXANDERS RESTAURANTS, LLC, | ||
a Tennessee limited liability company | ||
By: |
/s/ Mark A. Parkey |
|
Name: |
Mark A. Parkey |
|
Title: |
Vice President and Chief Financial Officer |
17
J. ALEXANDERS RESTAURANTS OF KANSAS, LLC, a Kansas limited liability company. |
||
By: |
/s/ Mark A. Parkey |
|
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
J. ALEXANDERS OF TEXAS, LLC, a Texas limited liability company |
||
By: |
/s/ Mark A. Parkey |
|
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
JAX REAL ESTATE, LLC, a Delaware limited liability company |
||
By: |
/s/ Mark A. Parkey |
|
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
JAX RE HOLDINGS, LLC, a Delaware limited liability company |
||
By: |
/s/ Mark A. Parkey |
|
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
JAX REAL ESTATE MANAGEMENT, LLC, a Delaware limited liability company |
||
By: |
/s/ Mark A. Parkey |
|
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer |
18
Exhibit 10.6
SECOND AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDED AND RESTATED AGREEMENT (Loan Agreement or Agreement) is made and entered into as of this 20th day of May, 2015, by and between J. ALEXANDERS, LLC, a Tennessee limited liability company (herein called Borrower) and PINNACLE BANK (herein called Lender).
W I T N E S S E T H:
WHEREAS, Lender and Borrower are parties to a certain Amended and Restated Loan Agreement dated December 9, 2014 (as may have been amended, restated, modified or supplemented from time to time, the Existing Loan Agreement) wherein Lender loaned Borrower funds for the purposes therein stated, said indebtedness being evidenced by (i) a promissory note in the original principal amount of $15,000,000.00 (together with any and all extensions, renewals and modifications thereof, the Term Note), (ii) a revolving promissory note in the maximum principal amount of $1,000,000.00 (together with any and all extensions, renewals and modifications thereof, the Revolving Note), and (iii) a revolving promissory note in the maximum principal amount of $15,000,000.00 (together with any and all extensions, renewals and modifications thereof, the Existing Development Note), the Term Note, Revolving Note and Existing Development Note hereinafter being collectively referred to as the Existing Notes; and
WHEREAS, Borrower has applied to Lender for additional financing (i) to increase the maximum principal amount of the Existing Development Note to $20,000,000 to fund land acquisition and the construction and/or leasehold improvements for new J. Alexanders and/or Stoney River restaurants and (ii) to provide an additional $10,000,000 term loan for the purpose of refinancing Borrowers existing indebtedness owed to Fidelity National Financial Ventures, LLC (FNFV) and Lender has agreed to provide such additional financing, subject to the terms and conditions hereinafter contained; and
WHEREAS, the Borrower has requested and Lender has agreed to amend and restate the Existing Loan Agreement in its entirety, it being understood that nothing contained herein shall be deemed a satisfaction or novation of the indebtedness and obligations created or evidenced by the Existing Loan Agreement or the Existing Notes as of the date hereof.
1
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lender and Borrower covenant and agree as follows:
I. THE LOANS
1.1 | Loan. Subject to the terms and provisions of this instrument, Lender has made or agrees to make available to Borrower: |
1.1.1. | A term loan in the original principal amount of FIFTEEN MILLION AND NO/100 ($15,000,000.00) DOLLARS, solely for the purposes specifically enumerated in the Existing Loan Agreement and certain costs and expenses related thereto (sometimes referred to as the Term Loan). The Term Loan has been fully funded prior to the date hereof. The Term Loan is evidenced by the Term Note. |
1.1.2. | A revolving line of credit in the maximum principal amount of ONE MILLION AND NO/100 ($1,000,000.00) DOLLARS, to be used for general corporate purposes, including working capital needs of Borrower and its subsidiaries, by advancing said sum to Borrower on a revolving basis from time to time at Borrowers request pursuant to the provisions herein contained (the Line of Credit). The Line of Credit is evidenced by the Revolving Note. |
1.1.3. | A revolving line of credit in the maximum principal amount of TWENTY MILLION AND NO/100 ($20,000,000.00) DOLLARS, solely for the purposes specifically enumerated herein and to pay certain costs and expenses related thereto, by advancing said sum to Borrower on a revolving basis from time to time at Borrowers request pursuant to the provisions herein contained (the Development Loan). The Development Loan shall be evidenced by a certain Amended and Restated Promissory Note in the maximum principal amount of $20,000,000.00, in form and content acceptable to Lender, which shall be executed by Borrower and payable to the order of Lender (together with any and all extensions, renewals and modifications thereof, the Development Note). |
1.1.4. | A term loan in the original principal amount of TEN MILLION AND NO/100 ($10,000,000.00) DOLLARS, solely for the purposes of refinancing Borrowers existing indebtedness owed to FNFV and certain costs and expenses related thereto (sometimes referred to as the Second Term Loan). The Second Term Loan is evidenced by that certain Promissory Note in the original principal amount of $10,000,000.00 in form and content acceptable to Lender, which shall be executed by Borrower and payable to the order of Lender (the Second Term Note). |
The Term Loan, the Line of Credit, the Development Loan and the Second Term Loan are sometimes hereinafter collectively referred to as the Loans). The Term Note, the Revolving Note, the Development Note and the Second Term Note are hereinafter collectively sometimes referred to as the Notes.
J. ALEXANDERS HOLDINGS, LLC, a Delaware limited liability company (Holdings), J. ALEXANDERS RESTAURANTS, LLC, a Tennessee limited liability company, J. ALEXANDERS RESTAURANTS OF KANSAS, LLC, a Kansas limited liability company, J. ALEXANDERS OF TEXAS, LLC, a Texas limited liability company, JAX REAL ESTATE, LLC, a Delaware limited liability company, JAX RE HOLDINGS, LLC, a Delaware limited liability company, JAX REAL ESTATE MANAGEMENT, LLC, a Delaware limited
2
liability company, STONEY RIVER MANAGEMENT COMPANY, LLC, a Delaware limited liability company, SRLS LLC, a Delaware limited liability company, STONEY RIVER LEGENDARY MANAGEMENT, L.P., a Georgia limited partnership, and STONEY RIVER, LLC, a Delaware limited liability company (herein collectively called Guarantors), shall unconditionally guarantee payment of the Loans, and all indebtedness now or hereafter owing to Lender by Borrower, and shall execute instruments in such form as may be reasonably required by Lender to accomplish such guaranties. The Guarantors herein stated include all of the wholly-owned subsidiaries of Borrower that own Collateral (as hereinafter defined).
1.2 Term. The term of the Loans shall be as set forth in the Notes and this Loan Agreement.
1.3 Interest. The Loans shall bear interest at annual rates as set forth in the Notes. Interest accruing under the Notes shall be computed on the basis of a three hundred sixty (360) day year. After default or maturity, interest and penalties shall accrue as set forth in the Note and this Loan Agreement. Notwithstanding anything herein to the contrary, in no event shall the interest rate exceed the maximum rate allowed by applicable law.
1.4 Repayment Schedule. Payment of all obligations arising under the Loans shall be made as set forth in the Note and this Loan Agreement.
1.5 Commitment Fees; Non-Use Fee. Upon the closing of the Development Loan and Second Term Loan, Borrower shall pay to Lender an upfront commitment fee equal to 0.25% of the $5,000,000 increase in the Development Loan and the original principal amount of the Second Term Loan, payable in full in cash at closing. Borrower shall also pay to Lender an unused fee equal to 0.25% per annum of the average, unused portion of the Line of Credit and the Development Loan until the termination of the Line of Credit and the termination of the Development Loan, payable quarterly in arrears.
1.6 Place of Payments. All payments of principal and interest shall be made at 150 Third Avenue South, Suite 800, Nashville, TN 37201, or at such other place, or places, as Lender may direct by notice in writing to Borrower from time to time.
1.7 Prepayment. Prepayment of principal due under the Term Loan, Line of Credit or Development Loan may be made at any time without premium or other prepayment charge. Prepayment of principal due under the Second Term Loan made hereunder may be made at any time without premium or other prepayment charge, unless the Second Term Loan is refinanced though another financial institution, in which case the prepayment penalty will be two percent (2%) of the prepaid loan amount. Provided, however, that if Lender is offered a reasonable opportunity to participate in the refinancing of the Second Term Loan, no such prepayment penalty shall apply.
3
1.8 Disbursement of Loans. The Term Loan has been disbursed in full. The Second Term Loan shall be fully funded as of the date hereof. Funds shall be disbursed by Lender under the Revolving Note and the Development Note for the purposes provided herein on a revolving basis from time to time at Borrowers request, and subject to and in accordance with the conditions and requirements contained herein, as follows:
(a) Lender shall not be obligated to disburse any portion of the Line of Credit and the Development Loan other than closing costs of the Loans approved by Lender, unless and until, at Lenders option, the following conditions precedent shall have been satisfied:
(i) Lender shall have received all of the Loan Documents and Security Instruments, as hereinafter defined, in form reasonably satisfactory to Lender, including, but not limited to Borrower and the appropriate parties executing one or more modification agreements (individually a Modification Agreement and collectively the Modification Agreements) amending and modifying the loan documents dated September 3, 2013 as amended on December 9, 2014, which among other things, include certain security documents wherein the indebtedness under the Development Loan and the Second Term Loan shall be secured by the Collateral (as hereinafter defined).
(ii) Borrower and Guarantors shall have provided to Lender certified resolutions appropriately authorizing the transactions contemplated herein and designating an authorized officer or other agent of Borrower to execute all Loan Documents to which Borrower is a party.
(iii) Lender shall have received financing statements in form acceptable to Lender to be filed with the Secretary of State of Tennessee, and such other locations as Lender may reasonably require, perfecting Banks security interest in the Collateral (as hereinafter defined), and any waivers or releases reasonably required by Lender.
(iv) Lender shall have received a copy of certified articles of organization and certificates of existence of Borrower and Guarantors from the Tennessee Secretary of State and/or such other jurisdictions as Lender may reasonably require, together with copies of the bylaws of Borrower and each corporate Guarantor.
(v) Lender shall have received UCC-11 searches issued by the Secretary of State of Tennessee and such other jurisdictions as Lender may reasonably require.
(vi) Borrower shall be in material compliance with all covenants, warranties and representations to which Borrower is obligated under this Loan Agreement.
(vii) No Event of Default shall then be in existence hereunder or would be caused by any such disbursement.
(viii) Borrower shall have furnished to Lender a detailed list of all of the corporate and/or limited liability company entities owned by Borrower, with evidence of any indebtedness currently outstanding with Borrower and/or Guarantors.
Interest shall accrue on sums advanced only from the date of disbursement of such sums.
4
(b) Advances under the Development Loan shall be subject to the following additional terms and conditions:
(i) Prior to advancing funds under the Development Loan, Borrower shall be in compliance with all the existing financial covenants.
(ii) Borrower may, at its option upon completion of any project financed under the Development Loan, request that Lender term-out advances made in respect of any such projects (a Term-Out Option). Thereafter, principal and interest payments in respect of such advances (a Conversion Loan) shall be due and payable monthly based upon a 180-month amortization for fee simple projects and a 60-month amortization for leasehold projects, with all amounts advanced in respect of a particular project being due and payable five (5) years from the beginning of principal and interest amortization (the Conversion Date).
(iii) Upon the Conversion Date for a particular project, all amounts advanced under Development Loan in respect of such project shall be available to be reborrowed under the Development Loan, provided Borrower has provided the documents described in Section 1.8 of this Agreement and further provided that no Event of Default has occurred and is continuing.
(iv) Borrower will pay all reasonable legal expense and recording cost/tax associated with perfecting Lenders a first priority security interest in the 3-J. Alexanders locations not currently financed with Lender, in addition to paying any and all reasonable legal expense and recording cost/tax associated with perfecting Lenders first priority security interest in the Collateral herein described.
(v) Borrower shall deliver or cause to be delivered to Lender a preliminary budget for operation of any new restaurant within thirty (30) days after the disbursement to Borrower of the initial disbursement to build said restaurant. In addition, in the event Borrower exercises a Term-Out Option with respect to a particular project, Borrower shall deliver to Lender or cause to be delivered to Lender, such documentation as Lender may reasonably request in respect of such project. Such documentation shall include but not be limited to a current appraisal, title commitment, landlords consents and estoppels (for leasehold projects) any environmental report and any other necessary reasonably required documents, all of which shall be provided to Lender in a timely manner but not less than thirty (30) days prior to the anticipated closing of the Conversion Loan. To clarify, upon the Conversion Date, the subject Conversion Loan shall no longer be secured by the Collateral, but shall be secured by a mortgage lien on the fee simple or leasehold interest in the subject restaurant, the construction of which was financed with the proceeds thereof. In addition, with respect to any permanent loan secured by real property, the original principal amount of such permanent loan will be the lesser of (a) Borrowers total real estate costs, or (b) 80% of the appraised property value. As part of the condition to a permanent loan being made, the Guarantors shall agree to continue to guarantee any such permanent loan.
5
1.9 Collateral. As collateral for the Secured Obligations, as hereinafter defined, including the Loan, Borrower shall execute and deliver, or cause to be executed and delivered to Lender, the following prior to or at closing hereunder:
(a) A mortgage/deed of trust lien on twelve (12) certain real estate assets owned by JAX Real Estate, LLC, J. Alexanders, LLC, and J. Alexanders Restaurants, LLC that each has a J. Alexanders Restaurant, Stoney River Restaurant, or a Redlands Grill Restaurant located thereon (Real Estate Collateral). Except for Permitted Encumbrances (as hereinafter defined), the Real Estate Collateral will be free and clear of other liens, claims and encumbrances. It is understood, however, that the Lender has an existing security interest in nine of said properties as set forth in the Existing Loan Agreement, pursuant to which the Lender obtained a first priority lien on the Real Estate Collateral to secure the Existing Notes.
(b) Except as set forth herein, in addition to the Real Estate Collateral herein described, Lender shall receive a first priority perfected security interest in substantially all existing and after-acquired tangible personal property of Borrower and Guarantors located at the Real Estate Collateral. As used herein Collateral shall mean all tangible personal property located at the Real Estate Collateral and the Real Estate Collateral. The Collateral will be free and clear of other liens, claims and encumbrances, except Permitted Encumbrances. As used herein Permitted Encumbrances shall mean (i) matters shown on the title insurance commitments delivered to Lender in connection herewith, (ii) subordinate judgment liens that are the subject of an ongoing appeal, (iii) liens in favor of Lender, (iv) liens securing purchase money indebtedness or capital lease obligations, and (v) liens for taxes not yet delinquent or being contested in good faith, (vi) claims of materialmen, mechanics, carriers, warehousemen, processors or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business to the extent limited to the property or assets relating to such contract, and (vii) liens in favor of a landlord to secure Borrowers or its subsidiaries obligations to pay rent. It is understood, however, that the Lender has existing security interest in said properties as set forth in the Existing Loan Agreement, pursuant to which the Lender obtained a first priority lien on the Collateral to secure the Existing Notes (subject to Permitted Encumbrances).
(c) Assignment and Security Agreement, assigning and granting a security interest to Lender in all items therein described and other rights and matters as provided therein arising from or with respect to the Collateral, together with Financing Statements to evidence and perfect such assignment and security interest, all of which shall be in form and substance reasonably satisfactory to Lender in all respects, and which shall be first priority encumbrances upon the property, rights and interests which are the subject of such Assignment and Security Agreement and Financing Statements (subject to Permitted Encumbrances).
(d) Guaranties of the Guarantors, in form and substance reasonably satisfactory to Lender executed by the Guarantors.
The foregoing instruments and documents, and any other instruments and documents now or hereafter securing the Secured Obligations, are herein sometimes collectively called the Security Instruments. The Security Instruments, together with the Notes, this Loan Agreement, and any other instruments and documents now or hereafter evidencing, securing or regulating the Loans or Secured Obligations are herein sometimes collectively called the Loan Documents.
Without limiting any of the provisions thereof, the Security Instruments shall secure the following (the Secured Obligations):
(a) The full and timely payment of the indebtedness evidenced by the Notes, together with interest thereon, and all extensions, modifications and renewals thereof.
6
(b) The full and prompt performance of all the obligations of Borrower to Lender under the Loan Documents.
(c) The full and prompt payment of all costs and expenses of whatever kind or nature incident to the collection of any indebtedness evidenced by the Notes, the enforcement or protection of the Security Instruments, or the exercise by Lender or any rights or remedies of Lender with respect to any indebtedness evidenced by the Notes, including but not limited to reasonable attorney fees incurred by Lender in connection therewith, all of which Borrower agrees to pay upon demand.
(d) The full and prompt payment and performance of any and all other indebtedness and obligations of Borrower to Lender, whether direct, indirect, contingent or matured, and whether incurred as endorser, guarantor, maker, surety or otherwise, whether now existing or hereafter arising.
1.10 Collateral Substitution. In the event Borrower shall elect to close or dispose of a restaurant that is part of the Real Estate Collateral, Lender shall release its mortgage lien on said Real Estate Collateral and any related personal property, so long as Borrower shall provide Lender with a mortgage lien on a substitute property reasonably satisfactory to Lender (which shall be subject to terms, conditions, and documentation reasonably satisfactory to Lender).
1.11 Further Documents and Actions. Borrower and Guarantors shall execute such instruments as Lender may reasonably require from time to time (which shall be in such form and substance as Lender may reasonably require), and shall take such other actions as Lender may reasonably require from time to time, to assure the full realization by Lender of the security of all the Collateral.
II. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as follows:
(a) Neither this Loan Agreement, nor any document, financial statement, report, notice, schedule, certificate, statement or other writing which has, or shall be, furnished to Lender by or on behalf of Borrower hereunder contains any untrue statement of a material fact, or omits to state a fact material to this Loan Agreement, or the Loans to be made hereunder.
(b) Borrower has full power and authority to consummate the transactions contemplated hereby.
(c) Borrower and each Guarantor have, and shall have, the authority and capacity to execute and deliver the Loan Documents to which it is a party.
7
(d) As of the date hereof, there is no default, under any instrument or document to which Borrower or any Guarantor is a party, which default is reasonably likely to cause a material adverse effect upon Borrower and Guarantors financial condition taken as a whole (a Material Adverse Effect). Neither the execution nor delivery of this Loan Agreement, or any of the Loan Documents, nor compliance with their terms and provisions, will conflict with or be in violation of any applicable law, regulation, ordinance, court order, injunction, writ, or decree which conflict is reasonably likely to result in a Material Adverse Effect.
(e) As of the date hereof there is no pending or, to Borrowers knowledge, threatened judicial, administrative, or arbitrational action or proceeding affecting Borrower, or any Guarantor before any court, governmental agency, or arbitrator which relates in any adverse manner to any of the transactions contemplated by this Loan Agreement, or which if adversely determined, is reasonably likely to result in a Material Adverse Effect. Neither Borrower, nor any Guarantor has any material contingent liability not disclosed in the financial information heretofore furnished to Lender, which is reasonably likely to result in a Material Adverse Effect.
(f) The funds disbursed under the Loans shall be used for no purpose other than the purposes stated above and for working capital needs and other general corporate purposes.
(g) The financial statements which have been heretofore delivered to Lender by or on behalf of Borrower and Guarantors, and all financial statements which shall be delivered hereunder by Borrower or Guarantors, or such parties, to Lender, during the term of this Loan Agreement, and until payment of the Loans made hereunder, fairly present, and shall fairly present, in all material respects, the financial condition and results of operations of the Borrower as of and for the periods represented.
(h) Borrower is a Tennessee limited liability company, validly existing, and in good standing under the laws of the State of Tennessee and has the power to own its properties, to carry on its business as now conducted, and to enter into and perform its obligations under this Loan Agreement and the other Loan Documents. Borrower is duly qualified to do business and in good standing in any other state in which a failure to be so qualified could reasonably be expected to have a Material Adverse Effect. The parties executing the Loan Documents on behalf of Borrower are duly authorized to act on its behalf.
(i) Guarantors are validly existing and in good standing under the laws of the states of their organization and have the power to guarantee the indebtedness contemplated hereby, to carry on business as now conducted, and to enter into and perform obligations under this instrument and the other Loan Documents. Guarantors are duly qualified to do business and in good standing in any other state in which a failure to be so qualified could reasonably be expected to have a Material Adverse Effect. The parties executing the Loan Documents on behalf of Guarantors are duly authorized to act on behalf of Guarantors.
(j) As of the date hereof, Borrowers principal office and chief place of business is located at 3401 West End Avenue, Suite 260, Nashville, Tennessee 37203. Borrower will give Lender thirty (30) days notice of any change in its principal office or chief place of business.
8
III. COVENANTS OF BORROWER
3.1 Loan Documents. Borrower and Guarantors shall execute and deliver, or cause to be executed and delivered, to Lender for the Loans to be made hereunder, prior to disbursement thereof, all of the Loan Documents, including but not limited to this Loan Agreement, the Notes and Security Instruments, all in form and substance reasonably satisfactory to Lender in all respects.
3.2 Additional Documentation. Borrower shall deliver to Lender charters, bylaws, certifications, affidavits, good standing certificates, resolutions, opinions of counsel, and such other documentation as may be reasonably necessary in Lenders judgment, to authorize the execution and delivery of any of the Loan Documents or to carry out the provisions of this Loan Agreement.
3.3 Liens. Borrower shall for the term of this Loan Agreement, and until payment of the Loan made hereunder, keep the Collateral free and clear of any and all liens except Permitted Encumbrances and shall pay all taxes (if any) which may be charged against any part or all of the Collateral, prior to the time such become delinquent. However, Borrower shall not be required to pay any such lien claim, tax or assessment deemed by Borrower to be excessive or invalid, or which may be otherwise contested by Borrower, for so long as Borrower shall in good faith object to or otherwise contest the validity of the same by appropriate legal proceeding, and provided further that Borrower, upon demand by Lender, as protection and indemnity against loss or damage resulting therefrom, shall deposit, either in cash, bond, or other collateral acceptable to Lender, an amount sufficient in Lenders reasonable judgment to cover the claim for such unpaid amounts, together with any costs or penalties which may thereafter accrue. Borrower shall pay, in any event, any such items prior to any judicial or nonjudicial sale to enforce any such lien.
3.4 Financial Statements and Other Information. Borrower shall provide Lender with quarterly company prepared consolidating and consolidated financial statements and a quarterly loan covenant compliance report within 45 days after the end of the first three (3) fiscal quarters of each fiscal year. Borrower shall also provide Lender with an annual audited consolidated financial statement and a loan covenant compliance report within 120 days of Borrowers fiscal year-end.
3.5 Additional Financial Covenants. Financial covenants will be calculated on a trailing four quarters basis (and for J. Alexanders Holdings, LLC, and its subsidiaries on a consolidated basis) and will consist of:
(a) Fixed Charge Coverage Ratio. Borrower shall maintain a Fixed Charge Coverage ratio of not less than 1.25 to 1.0. Fixed Charge Coverage Ratio shall be measured at quarter-end based on a four-quarter trailing basis. Fixed Charge Coverage Ratio shall be defined as the ratio of (A) the sum of Net Income (excluding the effect of any extraordinary or non-recurring gains or losses including any asset impairment charges, restaurant closing expenses (including lease buy-out expenses), changes in valuation allowance for deferred tax assets and non-cash deferred income tax benefits and expenses and up to $1,000,000.00 (in the aggregate for the 5-year term of the Development Loan) in uninsured losses) plus depreciation and amortization plus interest expenses plus rent payments plus non-cash FASB 123R items, i.e. stock based compensation and
9
non-cash expenses related to a profits interest plan, plus other non-cash expenses or charges, and plus expenses associated with the public offering/spin-off process, regardless of whether the public offering/spin-off occurs or is delayed, minus the greater of i) actual total store maintenance capital expenditures (excluding major remodeling or image enhancements), or ii) the total number of Borrowers stores operating for at least 18 months multiplied by $40,000.00, to (B) the sum of interest expense plus rent payments plus current maturities of long term debt and capital leases.
(b) Maximum Adjusted Debt to EBITDAR Ratio. Borrower shall maintain an Adjusted Debt to EBITDAR Ratio of not more than 4.0 to 1.0. Maximum adjusted Debt to EBITDAR shall be measured at quarter-end based on a four quarter trailing basis. Maximum Adjusted Debt to EBITDAR Ratio is defined as the ratio of (A) Total Funded Debt minus invested Funds plus rent payments multiplied by 7, to (B) EBITDAR. Invested Funds is defined as short term, liquid investments such as money markets with maturities of less than one year in length, and cash and cash equivalents; provided that investments into any joint venture or any endeavor not consistent with Borrowers core restaurant operating business without consent of Lender shall be excluded. EBITDAR shall be defined as the sum of: Net Income for such period (excluding the effect of any extraordinary or non-recurring gains or losses including any asset impairment charges, restaurant closing expenses (including lease buy-out expenses), changes in valuation allowance for deferred tax assets and non-cash deferred income tax benefits and expenses and up to $1,000,000.00 (in the aggregate for the five year term of the Development Loan) in uninsured losses) plus an amount which, in the determination of Net Income for such period has been deducted for (i) interest expense for such period; (ii) total federal, state foreign or other income taxes for such period; (iii) all depreciation and amortization for such period; (iv) rent payments; and (v) non-cash FASB 123R items, i.e. stock based compensation, and non-cash expense related to a profits interest plan, plus any other non-cash expenses or charges, and plus expenses associated with the public offering/spin-off process, regardless of whether the public offering/spin-off process occurs or is delayed, all as determined with GAAP.
3.6 Notice of Claims. Borrower shall promptly notify Lender of any litigation exceeding $500,000.00 by any third party which may arise with respect to the Collateral, not covered by insurance subject to customary deductibles.
3.7 Insurance. If such insurance is obtainable, Borrower shall furnish to Lender insurance policies with companies, and coverage and amounts, reasonably satisfactory to Lender insuring the Collateral against loss or damage by fire and other casualty, and such other risks as may be reasonably requested by Lender, said policies to insure the full replacement cost of such Collateral. Each such policy shall be maintained in full force and effect until the Loans have been paid in full.
3.8 Ownership of Collateral. Except as set forth herein and the other Loan Documents, Borrower shall at all time until final payment of the Loans be the true and lawful owner of all the Collateral.
3.9 Assignments and Participations. Lender is selling/assigning a $5,000,000.00 participation to third parties on such terms and conditions as set forth in said participation agreement. Lender will further have the right at any time to sell and assign interests in the Loans in
10
accordance with customary terms, including prior consent of the Borrower (not to be unreasonably withheld), which consent shall not be required if any Event of Default exists. Borrower and Lender acknowledge that Lender has committed to Borrower, that pursuant to the terms and conditions of this Agreement, and provided there is no default by Borrower or any of its affiliates in this Loan, Lender is obligated to loan to Borrower a total principal amount of $46,000,000.00 outstanding at any time. In the event Borrower requests that Lender make available amounts in excess of the said $46,000,000.00, Lender has the right to enter into additional participation agreements with third parties (in consultation with Borrower) whereby the amount exceeding the said $46,000,000.00 is purchased by said third parties on such terms and conditions as set forth in said participation agreement. Notwithstanding the foregoing, the parties acknowledge that Lender is under no obligation to loan to Borrower or its affiliates any funds in excess of $46,000,000.00.
3.10 Deposit Accounts. Borrower agrees to maintain the vast majority of its treasury management depository accounts and treasury management account balances with Lender.
3.11 Dividends.
(a) Any subsidiary of Borrower may pay dividends to another subsidiary of Borrower or to Borrower.
(b) Borrower shall be permitted to pay dividends to Holdings.
(c) Holdings shall be permitted to pay tax dividends to its members.
(d) Borrower shall be prohibited from issuing or declaring cash dividends without Lenders written permission until the Loans are fully repaid or expired, except as otherwise noted in (a), (b) and (c) above. Amounts paid to an affiliate of Borrower pursuant to a management agreement or similar arrangement are not considered a dividend.
IV. EVENTS OF DEFAULT
Each of the following shall constitute an Event of Default hereunder:
(a) If Borrower shall fail to pay any installment under the Loans within five (5) days of Lenders written notice to Borrower; or
(b) If Borrower shall fail to pay sums due under the Loans at maturity; or
(c) If Borrower or any of the Guarantors shall fail to keep and perform any other covenant or provision contained in this Loan Agreement, or in any of the Loan Documents, or if at any time any representation or warranty made by Borrower or any of the Guarantors, herein or otherwise in connection with the Loans made hereunder, shall be materially incorrect, and such failure shall continue unremedied for a period of thirty (30) days following the earlier of the date an
11
executive officer of Borrower first has actual knowledge of such breach or failure, or the date Borrower is given written notice from Lender to Borrower specifying such breach or failure. If such failure cannot be cured by Borrower with reasonable diligence within such thirty (30) day period, then such period shall be extended to a total of forty-five (45) days provided that within such thirty (30) day period Borrower shall commence to cure such breach or failure and shall continue to proceed thereafter with reasonable diligence; or
(d) If Borrower or any of the Guarantors (i) shall generally not pay or shall be unable to pay its or their debts as such debts become due; or (ii) shall make a general assignment for the benefit of creditors or petition or apply to any tribunal for the appointment of a custodian, receiver or trustee for such party, the Collateral or a substantial part of such partys assets; or (iii) shall commence any proceeding under bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any petition or application filed or commenced against it or them in which an order for relief is entered or an adjudication or appointment is made; or (v) shall indicate, by any act or omission, such partys consent to, approval of or acquiescence in any such petition, application, proceeding, or order for relief or the appointment of a custodian, receiver or trustee for such party, the Collateral or a substantial part of such partys assets; or (vi) shall suffer any custodianship, receivership or trusteeship to continue undischarged for a period of thirty (30) days or more; or
(e) If Borrower or any of the Guarantors shall be liquidated or dissolved (provided, however, any Guarantor may be liquidated, dissolved or merged into another Guarantor or Borrower); or
(f) If there is a material default in any other material indebtedness or obligations now or hereafter owing by Borrower or Guarantors to Lender, subject to applicable cure provisions.
In any such event, Lender may, in addition to all remedies available to Lender under the terms of any of the Loan Documents, or otherwise by applicable law, take any or all of the following actions, concurrently or successively: (i) declare the indebtedness evidenced by the Note delivered pursuant to this Loan Agreement to be immediately due and payable without presentment, demand, or other notice, all of which are expressly waived, unless notice is specifically provided herein, or elsewhere in the Loan Documents, (ii) terminate the obligation of Lender to extend credit of any kind hereunder, whereupon the obligation of Lender to make additional advances hereunder shall terminate, and/or (iii) acquire possession of the Collateral.
Borrower shall be liable to Lender for all sums paid or expended by Lender during the occurrence of an Event of Default in connection with the Collateral or otherwise in connection with this Loan Agreement, and all such payments made or liabilities incurred by Lender hereunder, of any kind whatsoever, shall be payable upon demand, and all of the foregoing, shall be deemed to constitute advances under this Loan Agreement, and the Notes, and shall be additional indebtedness secured by the Security Instruments.
12
V. GENERAL PROVISIONS
5.1 Setoff. In addition to all rights of setoff, Lender shall have upon the occurrence of an Event of Default hereunder the right to appropriate and apply to the payment of the Loans outstanding hereunder, any and all balances, credits, deposits, accounts, money, or other property of Borrower or Guarantors then or thereafter held by or deposited with Lender.
5.2 Attorney Fees and Costs. Borrower shall be liable to Lender for all sums reasonably paid or incurred by Lender in connection with this Loan Agreement, the Loans made hereunder, the Collateral, whether paid or incurred by reason of any default hereunder, or in any of the Loan Documents, or otherwise, and such shall include, but shall not be limited to, the payment of all reasonable attorneys fees so paid or incurred. All such sums shall be payable by Borrower to Lender upon demand, and all of the foregoing shall constitute advances under this Loan Agreement. Borrower shall further pay to Lender all costs and expenses incurred by Lender, including, but not limited to, reasonable attorneys fees, in the preparation and consummation of this Loan Agreement, and the Loan made hereunder.
Borrower will pay all reasonable outside legal fees and UCC recording cost and search expenses incurred by the Lender relative to negotiation and document preparation (whether or not the contemplated transaction is closed and funded), and any and all reasonable legal fees and expenses incurred by Lender after the closing for any and all ongoing administrative, enforcement and collection expenses related to the Loans.
5.3 Remedies Cumulative. All remedies provided for in this Loan Agreement, or in any of the Loan Documents, shall be cumulative, and shall be in addition to all other remedies available to Lender by applicable law.
5.4 Inspection. Upon reasonable prior notice, Lender, its representatives and designees, shall have reasonable access to the books and records of Borrower with respect to the Collateral, and shall be entitled to copies of such records upon request. Borrower shall make such books and records available to Lender upon reasonable request. Upon reasonable prior notice, Lender shall be entitled to access to the Collateral for the purpose of inspecting the same, and in order to otherwise carry out the provisions of this Loan Agreement, or of any of the Loan Documents.
5.5 No Waiver. The failure of Lender to exercise any right or remedy granted under this Loan Agreement, any of the Loan Documents, or by applicable law, shall not be a waiver of Lenders right or rights to exercise any such right or remedy upon any subsequent default.
5.6 Captions. Captions used herein are for convenience only, and shall not be construed as limiting the construction of the provisions of this Loan Agreement.
13
5.7 Notice. Any and all notices permitted or required under this Loan Agreement, or any of the Loan Documents, shall be deemed given if hand-delivered, or mailed by United States registered or certified mail, postage prepaid, return receipt requested, to the following addresses:
If to Borrower, as follows: | J. Alexanders, LLC | |
Attn: Mark Parkey, CFO | ||
3401 West End Avenue, Suite 260 | ||
Nashville, Tennessee 37203 | ||
with a copy to: | Bass, Berry & Sims PLC | |
Attn: Felix R. Dowsley, III | ||
150 Third Avenue S., Suite 2800 | ||
Nashville, TN 37201 | ||
and in the case of Lender: | Pinnacle Bank | |
Attn: William W. DeCamp, Senior Vice President 150 Third Avenue S., Suite 800 |
||
Nashville, Tennessee 37201 | ||
with a copy to: | Gullett, Sanford, Robinson & Martin PLLC | |
Attn: George V. Crawford, Jr. | ||
150 Third Avenue S., Suite 1700 | ||
Nashville, Tennessee 37201 |
or to such other address, or addresses, as either party may request in writing to the other from time to time. No notice to or demand on Borrower hereunder, in itself shall entitle Borrower to any other or further notice or demand in similar or other circumstances, or shall constitute a waiver of the rights of Lender to any other or further action in any circumstances without notice or demand.
5.8 Interest. Notwithstanding anything herein to the contrary, in no event shall interest charged under the Loans hereunder exceed the maximum rate allowed by applicable law. Interest shall be calculated on the basis of a three hundred sixty (360) day year.
5.9 No Liability. Except to the extent caused by Lenders negligence or willful misconduct, Borrower shall indemnify and hold harmless Lender from and against any and all liability, loss, and damage incurred by Lender in connection with this Loan Agreement.
5.10 Successors and Assigns. This Loan Agreement shall be binding upon the parties hereto, and their respective successors and assigns. However, no rights of Borrower hereunder may be assigned without the express prior written consent of Lender.
5.11 Severability. The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of the remaining provisions.
5.12 Entire Agreement, Amendment. This Loan Agreement, and the Loan Documents executed pursuant hereto shall constitute the entire agreement of the parties. Any additional
14
provisions contained in the Loan Documents not contained herein shall be supplemental and in addition to the provisions hereof. This Loan Agreement may be modified or amended only by an instrument in writing executed by all parties hereto.
5.13 Applicable Law. The construction and validity of this Loan Agreement, and the Loans made hereunder, shall be governed by the law of the State of Tennessee, except to the extent that such may be pre-empted by applicable law or regulation of the United States of America governing the charging or receiving of interest.
5.14 Time of the Essence, Gender, Number. Time is of the essence with respect to this Loan Agreement, and all provisions and obligations hereof. As used herein, the singular shall refer to the plural, the plural to the singular, and the use of any gender shall be applicable to all genders.
5.15 Further Assurances. Borrower shall execute and deliver such additional instruments and documents and take such further actions, as may be reasonably requested by Lender from time to time to further evidence or perfect the rights of and obligations owing to Lender hereunder and to correct any errors or mistakes in the transactions evidenced hereby.
5.16 Counterparts. This Loan Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument.
5.17 Guarantors. The Guarantors join in the execution of this Amended and Restated Loan Agreement for the purpose of acknowledging Guarantors obligations with respect to this Amended and Restated Loan Agreement, the Revolving Note, the Term Note, the Development Loan and the Existing Loan Agreement, and in addition any other instrument or document evidencing or securing all or any part of the Loans.
5.18 Amendment and Restatement. This Second Amended and Restated Loan Agreement constitutes an amendment and restatement of that certain Amended and Restated Loan Agreement, dated December 9, 2014, by and among the Borrower, the Lender and the within named Guarantors.
The remainder of this page is left intentionally blank.
15
IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Loan Agreement as of the date first above written.
BORROWER: | ||
J. ALEXANDERS, LLC , a Tennessee limited liability company |
||
By: | /s/ Mark A. Parkey | |
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
LENDER: | ||
PINNACLE BANK | ||
By: | /s/ William W. DeCamp | |
William W. DeCamp, Senior Vice President |
GUARANTORS: | ||
J. ALEXANDERS HOLDINGS, LLC, a Delaware limited liability company |
||
By: |
/s/ Mark A. Parkey |
|
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
J. ALEXANDERS RESTAURANTS, LLC, a Tennessee limited liability company |
||
By: |
/s/ Mark A. Parkey |
|
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer |
Signature Page Second Amended and Restated Loan Agreement
IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Loan Agreement as of the date first above written.
BORROWER: | ||
J. ALEXANDERS, LLC , a Tennessee limited liability company |
||
By: | /s/ Mark A. Parkey | |
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
LENDER: | ||
PINNACLE BANK | ||
By: | /s/ William W. DeCamp | |
William W. DeCamp, Senior Vice President |
GUARANTORS: | ||
J. ALEXANDERS HOLDINGS, LLC, a Delaware limited liability company |
||
By: | /s/ Mark A. Parkey | |
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
J. ALEXANDERS RESTAURANTS, LLC, a Tennessee limited liability company |
||
By: | /s/ Mark A. Parkey | |
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer |
Signature Page Second Amended and Restated Loan Agreement
J. ALEXANDERS RESTAURANTS OF KANSAS, LLC, a Kansas limited liability company | ||
By: | /s/ Mark A. Parkey | |
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
J. ALEXANDERS OF TEXAS, LLC, a Texas limited liability company |
||
By: | /s/ Mark A. Parkey | |
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
JAX REAL ESTATE, LLC, a Delaware limited liability company |
||
By: | /s/ Mark A. Parkey | |
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
JAX RE HOLDINGS, LLC, a Delaware limited liability company |
||
By: | /s/ Mark A. Parkey | |
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
JAX REAL ESTATE MANAGEMENT, LLC, a Delaware limited liability company |
||
By: | /s/ Mark A. Parkey | |
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer |
Signature Page Second Amended and Restated Loan Agreement
STONEY RIVER MANAGEMENT COMPANY, LLC, | ||
a Delaware limited liability company | ||
By: | /s/ Mark A. Parkey | |
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
SRLS LLC, a Delaware liability company |
||
By: | /s/ Mark A. Parkey | |
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer | |
STONEY RIVER LEGENDARY MANAGEMENT, L.P., a Georgia for-profit limited partnership |
||
By: Stoney River, LLC, a Delaware limited liability company, its General Partner | ||
By: | /s/ Mark A. Parkey | |
Name: |
Mark A. Parkey |
|
Title: |
Vice President and Chief Financial Officer |
|
STONEY RIVER, LLC, a Delaware limited liability company |
||
By: | /s/ Mark A. Parkey | |
Name: | Mark A. Parkey | |
Title: | Vice President and Chief Financial Officer |
Signature Page Second Amended and Restated Loan Agreement
Exhibit 10.7
J. ALEXANDERS HOLDINGS, LLC
2015 MANAGEMENT INCENTIVE PLAN
ARTICLE I
ESTABLISHMENT, DEFINITIONS AND PURPOSE
1.1 Establishment . J. Alexanders Holdings, LLC, a Delaware limited liability company (the Company ), hereby establishes this plan, which is to be known as the J. Alexanders Holdings, LLC 2015 Management Incentive Plan (the Plan ). The Plan shall become effective as of January 1, 2015.
1.2 Definitions . Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in that certain the Amended and Restated Limited Liability Company Agreement of the Company dated as of January 1, 2015, as may be amended from time to time, or any successor agreement thereto (the LLC Agreement ).
1.3 Purpose . The Plan is intended to promote the long-term growth and profitability of the Company by providing members of management and other service providers who are or will be involved in the Companys growth with an opportunity to acquire an ownership interest in the Company, thereby encouraging such persons to contribute to and participate in the success of the Company. Under the Plan, the Board may grant awards (each, an Award ) of Management Units (the Units ) to employees of and/or other service provider to the Company and/or its Subsidiaries, as may be selected in the sole discretion of the Board (collectively, Participants ).
ARTICLE II
AWARD POOL
2.1 Award Pool . One million seven hundred seventy thousand (1,770,000) Units are reserved for issuance under the Plan in accordance with the terms of the LLC Agreement. Any Units that for any reason are cancelled, forfeited, or acquired by the Company (pursuant to a put, call, redemption or other right) shall again be available for issuance under the Plan.
ARTICLE III
ADMINISTRATION
3.1 Administration . The Board shall, subject to the provisions of this Plan and the LLC Agreement, have the power and authority to prescribe, amend and rescind rules and procedures governing the administration of the Plan, including, but not limited to the full power and authority to (a) interpret the terms of the Plan, the terms of any Awards made under the Plan, and the rules and procedures established by the Board governing any such Awards, (b) determine the rights of any person under the Plan, or the meaning of requirements imposed by the terms of the Plan or an Award, or any rule or procedure established by the Board, (c) select the Participants to whom Awards will be granted under the Plan, (d) establish any vesting or other terms and conditions applicable to an Award, (e) impose such limitations, restrictions and conditions upon, or in connection with, such
Awards as it shall deem appropriate, (f) adopt, amend, and rescind administrative guidelines and other rules and regulations relating to the Plan, (g) correct any defect or omission or reconcile any inconsistency in the Plan and (h) make all other determinations and take all other actions necessary or advisable for the implementation and administration of the Plan and Awards, subject to the LLC Agreement and such limitations as may be imposed by the Code or other applicable law. Each action of the Board (including each interpretation or other determination of the Board) with respect to the Plan or any Awards made under the Plan shall be final, binding and conclusive on all persons.
ARTICLE IV
ELIGIBILITY AND AWARD AGREEMENTS
4.1 Eligibility . Subject to the terms of the Plan and the LLC Agreement, the Board shall have the authority to select the Participants who will receive Awards.
4.2 Award Agreement . Awards granted under the Plan shall be evidenced by a written agreement executed by the Company and the Participant (the Award Agreement ).
ARTICLE V
GENERAL PROVISIONS
5.1 Nature of Awards . Each Unit will be treated as a separate Profits Interest. The Units issued under this Plan shall have a Hurdle Amount sufficient in the determination of the Board to cause such Units to be properly treated as profits interest within the meaning of Rev. Proc. 93-27, 1993-2 C.B. 343 (such interest, a Profits Interest ); provided, however, that in no event shall the Board, the Company or any Affiliate of the Company (or their employees, agents, officers, directors, managers, successors or assigns) be liable to any Participant if the Units are not treated as Profits Interests for U.S. federal income tax purposes. Notwithstanding anything to the contrary, distributions to a Participant pursuant to Sections 5.2 and 5.3 of the LLC Agreement shall be limited to the extent necessary so that the Profits Interest of such Participant qualifies as a profits interest under Rev. Proc. 93-27, and the Plan, Award and LLC Agreement shall be interpreted accordingly. In accordance with Rev. Proc. 2001-43, 2001-2 CB 191, the Company shall treat a Participant holding an Award as the owner of the Units underlying such Award from the date the Award is granted, and shall file its IRS Form 1065, and issue appropriate Schedule K-1s to such Participant allocating to such Participant its distributive share of all items of income, gain, loss, deduction and credit associated with such Profits Interest as if it were fully vested. Each Participant agrees to take into account such distributive share in computing its federal income tax liability for the entire period during which it holds the Award and/or Units. The undertakings contained in Section 3.4(b) of the LLC Agreement shall be construed in accordance with Section 4 of Rev. Proc. 2001-43. The provisions of Section 3.4(b) of the LLC Agreement shall apply regardless of whether or not the Participant files an election pursuant to Section 83(b) of the Code.
5.2 Voting Rights . Units granted pursuant to the Plan shall not provide to the holders thereof any right to vote on, or consent to, any matter under the LLC Agreement or the Act, including the merger, consolidation, conversion or dissolution of the Company.
2
5.1 Amendment; Termination . The Board may modify, amend, suspend or terminate the Plan in whole or in part at any time; provided, however, that such modification, amendment, suspension or termination shall not, without a Participants consent, adversely affect the rights in any material respect of a previously-made Award. No Awards may be granted under the Plan after January 1, 2025.
5.2 Governing Law . The Act shall govern all questions arising under this Plan concerning the relative rights of the Company and the Participants. All other questions concerning the construction, validity and interpretation of this Plan shall be governed by and construed in accordance with the domestic laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Company and Participants (pursuant to the Award Agreements), will irrevocably and unconditionally submit to the exclusive jurisdiction of any State or Federal court sitting in Nashville, TN over any suit, action or proceeding arising out of or relating to this Plan or the Awards. Service of any process, summons, notice or document by U.S. registered mail addressed to any party shall be effective service of process for any action, suit or proceeding brought against a party in any such court. The Company and Participants (pursuant to the Award Agreements) will waive any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. A final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon any party and may be enforced in any other courts to whose jurisdiction any party is or may be subject, by suit upon such judgment.
5.3 Securities Laws . The Plan has been instituted by the Company to provide certain compensatory incentives to Participants and is intended to qualify for an exemption from the registration requirements under the Securities Act and any other applicable state securities laws pursuant to Rule 701 under the Securities Act or any other applicable exemption (collectively, the Exemption ); however, the Company makes no representation or warranty that the Exemption applies to the Awards, and in no event shall the Board, the Company or any Affiliate of the Company (or their employees, agents, officers, directors, managers, successors or assigns) be liable to any Participant (other than to effect rescission or similar rights that may arise under applicable securities laws) for any failure to comply with such Exemptions. The Company may impose any restrictions or terms on any Awards or Units granted pursuant to Awards, and may require Participants to make such representations, as the Company determines to be necessary to comply with the Exemption.
5.4 Section 409A Compliance . It is the intention of the Company and the Board that Awards granted under the Plan not be subject to the provisions of Section 409A of the Code. To the extent an Award granted under the Plan is determined to be subject to the provisions of Section 409A of the Code, it is intended that the terms of the LLC Agreement, the Plan and the Award Agreement applicable to such Award comply with Section 409A and they shall be interpreted in a manner consistent with such intent. Notwithstanding the foregoing, the Company makes no representation or warranty that the Awards will not be subject to (or will comply with) Section 409A of the Code, and in no event shall the Board, the Company or any Affiliate of the Company (or their employees, agents, officers, directors, managers, successors or assigns) be liable to any Participant for any failure to comply with Section 409A or an applicable exemption thereunder.
3
5.5 No Guarantees Regarding Tax Treatment; No Tax Minimization Obligation . Neither the Board nor the Company make any guarantees to any person regarding the tax treatment of any Award or payments made with respect to any Award. Neither the Board nor the Company have any duty or obligation to minimize the tax consequences of any Award, including, without limitation, tax consequences that may result from changes to applicable law and none of the Board, the Company, any subsidiaries or affiliates of the Company, or any of their employees or representatives shall have any liability to any person with respect to such tax consequences.
5.6 Withholding . A Participant may be required to pay to the Company, and the Company shall have the right and is hereby authorized to withhold from any payment due under any Award, the amount (in cash or, at the election of the Company, securities or other property) of any applicable federal, state, local or foreign withholding taxes in respect of such payment and to take such other action as may be necessary in the opinion of the Administrator to satisfy all obligations for the payment of withholding taxes.
5.7 Conflict between the Plan and the LLC Agreement . The Plan is subject to the LLC Agreement. In the event of a conflict between any term or provision contained herein and a term or provision of the LLC Agreement, the applicable term and provision of the LLC Agreement will govern and prevail.
* * * * *
4
Exhibit 10.8
FORM OF GRANT AGREEMENT
J. ALEXANDERS HOLDINGS, LLC
UNIT GRANT AGREEMENT
This Unit Grant Agreement (this Agreement ) is made as of January 1, 2015 (the Grant Date ) by J. Alexanders Holdings, LLC, a Delaware limited liability company (the Company ), with ___________ (the Grantee ). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Amended and Restated Limited Liability Company Agreement of the Company dated as of January 1, 2015, as may be amended from time to time, or any successor agreement thereto (the LLC Agreement ).
1. Grant of Units; Hurdle Amount . The Company hereby grants to the Grantee, in connection with the Grantees performance of services to or for the benefit of the Company in a partner capacity or in anticipation of being a partner, _______ Management Units (the Units ), subject to the terms and conditions of this Agreement (the Award ), the Companys 2015 Management Incentive Plan (a copy of which the Grantee acknowledges having received, the Plan ) and the LLC Agreement. The Hurdle Amount applicable to the Units as of the date hereof is $180 million. The Hurdle Amount will be increased by the aggregate amount of all Capital Contributions made to the Company after the Grant Date.
2. Vesting; Termination Employment; Forfeiture .
(a) Vesting . Consistent with Section 3.4(a) of the LLC Agreement, subject to the Grantees continued Employment through the applicable vesting date, the Grantee shall vest in his or her Units at the rate of 50% on the second anniversary of the Grant Date and 100% on the third anniversary of the Grant Date, provided, however, that all Units will become vested 100% immediately (i) upon the consummation of a Sale of the Company, or (ii) if the Grantee is a non-employee director or manager, upon the Grantees termination of Employment by reason of the Grantee (A) not being nominated for reelection (unless due to an action or inaction that constitutes Cause (as defined in Section 3(b) below)), the Grantees decision not to stand for reelection or the Grantees death or Disability, or (B) being nominated but not elected to the board (unless due to the Grantees death or Disability). Except as provided in the previous sentence, there shall be no partial vesting in the event that the Grantees Employment is terminated before a vesting date.
(b) Termination of Employment . Consistent with Section 3.5(a)(ii) of the LLC Agreement, upon the Grantees termination of Employment with the Company or any of its Subsidiaries for any reason, including death or Disability, all unvested Units shall be immediately and automatically cancelled and forfeited for no consideration. Vested Units at the time of the Grantees termination of Employment with the Company shall remain outstanding in accordance with the terms of this Agreement, the Plan and the LLC Agreement; provided, however, that all Vested Units shall be immediately and automatically cancelled and forfeited for no consideration upon a termination of the Grantees Employment for Cause. For purposes of this Agreement, the term Cause shall have the meaning set forth in the Grantees employment agreement or, in the absence thereof, shall have the meaning set forth in the LLC Agreement. The Grantees termination for Cause shall be effective (i) at the time set forth in Grantees employment
agreement, if specified therein, or (ii) in absence of such an agreement or specification, shall be effective when and if a resolution is duly adopted by an affirmative vote of at least 3 ⁄ 4 of the Board, less the Grantee (if the Grantee is then serving as a member of the Board) stating that, in the good faith opinion of the Board, the Grantee is guilty of conduct constituting Cause under this Agreement; provided , however , that in the case of clause (ii), the Grantee shall have been given reasonable opportunity to cure any act or omission that constitutes Cause if capable of cure unless the Grantee has previously been given an opportunity to cure an act or omission that constitutes Cause.
3. Allocations, Distributions; Puts, Calls and other rights . The Grantees entitlement to allocations, distributions and other rights with respect to the vested and unvested Units, as applicable (including, without limitation, call rights, put rights, redemption rights, tag-along rights and take-along rights, if any), are set forth in the LLC Agreement. Except as provided in the following sentence, in no event shall the Units be sold or otherwise disposed of (whether pursuant to a call right, put right, or otherwise) within the six-month period (or such other period as may be specified by the Company) following the date the Units vest (the Holding Period ) to the extent such disposition of the Units during the Holding Period would cause the Award not to be classified as an equity award under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation (or any applicable successor standards). The prior sentence shall not apply to dispositions occurring in connection with a redemption pursuant to Article XI of the LLC Agreement. For the avoidance of doubt, if the Grantee has filed an Redemption Notice pursuant to Article XI with respect to any unvested Units, for purposes of determining the Redemption Price with respect to such unvested Units, such unvested Units shall be deemed to be entitled to receive distributions pursuant to Section 5.2 of the LLC Agreement to the same extent as if they were vested Units.
4. Subject to Terms of LLC Agreement . As a further condition subsequent to the issuance of the Units pursuant to this Agreement, if the Grantee is not already a party to the LLC Agreement, the Grantee shall execute and deliver to the Company a copy of the LLC Agreement or a joinder thereto (substantially in the form attached as Exhibit B to the LLC Agreement), together with such other documents as the Company may require, evidencing the Grantees status as a Management Member. The Grantee acknowledges receipt of the LLC Agreement.
5. Grantees Representations and Warranties . In connection with the grant of the Units hereunder, the Grantee hereby represents and warrants to the Company that:
(a) The Grantee is acquiring the Units hereunder for the Grantees own account with the present intention of holding such securities for investment purposes and that the Grantee has no intention of selling such securities in a public distribution in violation of the federal securities laws or any applicable state or foreign securities laws. The Grantee acknowledges that the Units have not been registered under the Securities Act or applicable state or foreign securities laws and that the Units will be issued to the Grantee in reliance on exemptions from the registration requirements of the Securities Act and applicable state and foreign statutes and in reliance on the Grantees representations and agreements contained herein.
(b) The Grantee acknowledges that the Units are subject to the terms and provisions of the LLC Agreement, and acknowledges and consents to be bound by such terms and
2
provisions with respect to the Units, including, without limitation, the applicable provisions set forth in Article III (including the call rights), Article VIII (including the restrictions on transfers), and Article X (including the take-along rights) of the LLC Agreement.
(c) The Grantee is not entitled to any preemptive rights set forth in Article XII of the LLC Agreement.
(d) The Grantee is employed by or otherwise provides services to or for the benefit of the Company.
(e) The Grantee has had an opportunity to ask the Company and its representatives questions and receive answers thereto concerning the terms and conditions of the Units to be acquired by the Grantee hereunder and has had full access to such other information concerning the Company as the Grantee may have requested in making the Grantees decision to acquire the Units being issued hereunder.
(f) The Grantee will not sell or otherwise transfer, assign, convey, exchange, mortgage, pledge, grant or hypothecate any Units without registration under the Securities Act (and any applicable federal, state and foreign securities laws) or an exemption therefrom, and provided there exists such a registration or exemption, any such transfer of Units by the Grantee or subsequent holders of Units will be in compliance with the provisions of this Agreement, the Plan and the LLC Agreement.
(g) The Grantee has all requisite legal capacity to carry out the transactions contemplated by this Agreement, the Plan and the LLC Agreement, and the execution, delivery and performance by the Grantee of this Agreement, the Plan and the LLC Agreement and all other agreements contemplated hereby and thereby to which the Grantee is a party have been duly authorized by the Grantee.
(h) The Grantee has only relied on the advice of, or has consulted with, the Grantees own legal, financial and tax advisors, and the determination of the Grantee to acquire the Units pursuant to this Agreement has been made by the Grantee independent of any statements or opinions as to the advisability of such acquisition or as to the properties, business, prospects or condition (financial or otherwise) of the Company which may have been made or given by any other Person (including all Persons acquiring Units on the date hereof) or by any agent or employee of such Person and independent of the fact that any other Person has decided to become a holder of Units.
6. Certificates; Legends . The Grantee shall have all the rights of a Management Member with respect to the vested and unvested Units, as applicable, as provided in the LLC Agreement, subject to the restrictions in this Agreement and the Plan. To the extent that the fully vested Units are certificated, the Board or such other escrow holder as the Board may appoint shall retain physical custody of any certificate representing of the fully vested Units issued hereunder until all of the restrictions imposed under this Agreement, the Plan and the LLC Agreement with respect to such fully vested Units expire or shall have been removed. In order to enforce the restrictions imposed upon the fully vested Units under this Agreement, the Plan and the LLC Agreement, the Board shall cause a legend or legends to be placed on any certificates representing
3
the Units that are still subject to restrictions under this Agreement, the Plan and the LLC Agreement, which legend or legends shall make appropriate reference to the conditions imposed thereby. Nothing contained herein shall require the Board or the Company to certificate the fully vested Units.
7. Adjustments . If there shall occur any change with respect to the outstanding Units by reason of any recapitalization, reclassification, unit split, reverse unit split or any merger, reorganization, consolidation, combination, spin-off or other similar change affecting the Units, the Board shall, in the manner and to the extent that it deems appropriate and equitable in its discretion, cause an adjustment to be made in the number of Units granted hereunder, the Hurdle Amount and any other terms hereunder that are affected by the event to the extent necessary to prevent dilution or enlargement of the Grantees rights hereunder.
8. Administration . The Board shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application of this Agreement as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon the Grantee, the Company and all other interested persons.
9. Taxes .
(a) Tax Election . The Grantee shall make an election with the United States Internal Revenue Service under Section 83(b) of the Code not later than 30 days after the Grant Date. A Section 83(b) election form is attached hereto as Exhibit A . The Grantee shall deliver a copy of any such Section 83(b) election to the Company.
(b) No Guarantee of Tax Treatment . Each Unit will be treated as a separate profits interest within the meaning of Rev. Proc. 93-27, 1993-2 C.B. 343 (such interest, a Profits Interest ). Notwithstanding anything to the contrary, distributions to the Grantee pursuant to Section 5.2 and 5.3 of the LLC Agreement shall be limited to the extent necessary so that the Profits Interest of the Grantee qualifies as a profits interest under Rev. Proc. 93-27, and the Plan, Award and LLC Agreement shall be interpreted accordingly. In accordance with Rev. Proc. 2001-43, 2001-2 CB 191, the Company shall treat the Grantee as the owner of the Units underlying this Award from the Grant Date, and shall file its IRS Form 1065, and issue appropriate Schedule K-1s to the Grantee allocating to the Grantee the Grantees distributive share of all items of income, gain, loss, deduction and credit associated with such Profits Interest as if it were fully vested. The Grantee agrees to take into account such distributive share in computing the Grantees federal income tax liability for the entire period during which the Grantee holds the Award and/or Units. The Company and the Grantee will not claim a deduction (as wages, compensation or otherwise) for the fair market value of the Profits Interest issued to the Grantee, either at the time of grant of the Award or at the time the Units becomes substantially vested. The undertakings contained in Section 3.4(b) of the LLC Agreement shall be construed in accordance with Section 4 of Rev. Proc. 2001-43. The provisions of Section 3.4(b) of the LLC Agreement shall apply regardless of whether or not the Grantee files an election pursuant to Section 83(b) of the Code.
10. Transferability . The Grantee may not transfer or assign, directly or indirectly, this Agreement or any Units other than as provided under the LLC Agreement. Any purported assignment, transfer or grant by the Grantee, directly or indirectly, of this Agreement or any Units in contravention of this Agreement and the LLC Agreement shall be null and void.
4
11. Remedies . The parties hereto shall be entitled to enforce their rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement (including costs of enforcement) and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that either party may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement.
12. Governing Law . The Act shall govern all questions arising under this Agreement concerning the relative rights of the parties hereto. All other questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The parties hereto hereby irrevocably and unconditionally submit to the exclusive jurisdiction of any State or Federal court sitting in Nashville, TN over any suit, action or proceeding arising out of or relating to this Plan. The parties hereby agree that service of any process, summons, notice or document by U.S. registered mail addressed to any party shall be effective service of process for any action, suit or proceeding brought against a party in any such court. The parties hereto hereby irrevocably and unconditionally waive any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. The parties hereto agree that a final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon any party and may be enforced in any other courts to whose jurisdiction any party is or may be subject, by suit upon such judgment.
13. Counterparts . This Agreement may be executed in any number of multiple counterparts, each of which shall be deemed to be an original copy and all of which shall constitute one agreement, binding on all parties hereto.
14. Successors and Assigns . Subject to the limitations set forth in this Agreement, this Agreement shall be binding upon, and inure to the benefit of the Company and its successors and assigns, the Grantee and any subsequent holder of the Units granted pursuant to this Agreement, and the respective successors and assigns of each of them, so long as they hold the Units granted pursuant to this Agreement.
15. Entire Agreement; Amendments and Waivers . This Agreement, together with the Plan and the LLC Agreement constitutes the entire agreement between the parties hereto pertaining to the Units and fully supersede any and all prior or contemporaneous agreements or understandings between the parties hereto pertaining to the Units; provided, however, that this Agreement shall not supersede or otherwise affect any employment or other agreement to which the Employee is a party, whether or not such other agreement contains restrictive covenants. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. This Agreement may not be amended except in an instrument in writing signed on behalf of each of
5
the parties hereto and approved by the Board. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
16. Severability . Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
17. Descriptive Headings . The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
18. No Right to Continued Service . Nothing in this Agreement shall confer upon the Grantee any right to continue to provide services to or for the benefit of the Company or any of its Subsidiaries, or shall interfere with or restrict in any way the rights of the Company or any of its Subsidiaries, which are hereby expressly reserved, to terminate the services of the Grantee, at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or any of its Subsidiaries and the Grantee.
19. Conformity to Securities Laws . The Grantee acknowledges that this Agreement and the grant of the Units hereunder is intended to conform to the extent necessary with applicable federal and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Units are granted only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
20. Conflict between this Agreement and the LLC Agreement . In the event of a conflict between any term or provision contained herein and a term or provision of the LLC Agreement, the applicable term and provision of the LLC Agreement will govern and prevail.
21. Restrictive Covenant Agreement . As a further condition subsequent to the issuance of the Units pursuant to this Agreement, and as partial consideration for the grant of the Units, the Grantee has entered into (or if Grantee has not already entered into, Grantee will enter into), and agrees to be bound by, the Confidentiality, Non-Competition, Non-Solicitation and Intellectual Property Agreement attached hereto as Exhibit B ; provided, however, that in the event Grantee is otherwise subject to a non-competition, non-solicitation, trade secrets, confidentiality or similar restrictive covenant agreement (including within any employment agreement) with the Company, the terms of such other arrangement shall remain in full force and effect and Grantee shall not execute or be bound by Exhibit B .
6
Executed as of the Grant Date.
J. ALEXANDERS HOLDINGS, LLC | GRANTEE | |||||||
By: | By: | |||||||
Name: | Name: | |||||||
Title: |
7
Exhibit A
Section 83(b) Election
The undersigned taxpayer elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the Code ), to include in gross income as compensation for services the excess (if any) of the fair market value of the property described below over the amount paid for such property.
1. |
The name, taxpayer identification number, address of the undersigned, and the taxable year for which this election is being made are: |
a. |
TAXPAYERS NAME: |
b. |
TAXPAYERS SOCIAL SECURITY NUMBER: |
c. |
ADDRESS: |
d. |
TAXABLE YEAR: Calendar Year 2015 |
2. |
The property that is the subject of this election is a limited liability company membership interest consisting of ___________ Management Units of J. Alexanders Holdings, LLC (the Membership Interest ). The Membership Interest is intended to be treated for federal income tax purposes by J. Alexanders Holdings, LLC and its members, including the undersigned, as a profits interest within the meaning of Revenue Procedure 93-27 and Revenue Procedure 2001-43 (together, the Revenue Procedures ) and other related official guidance promulgated by the Internal Revenue Service. Based on the Revenue Procedures, the undersigned believes that the undersigned is not subject to tax upon receipt of the Membership Interest, either at the time of the grant of the Membership Interest or at the time or times when the Membership Interest will vest under the terms of the grant agreement. However, in case it should be determined that any of the conditions necessary for the Revenue Procedures to apply have not been met and that the undersigneds receipt of the Membership Interest or the vesting thereof is subject to tax under Section 83 of the Code, the undersigned is making this protective election to have the receipt of the Membership Interest taxed under the provisions of §83(b) of the Code at the time the undersigned acquired the Membership Interest. |
3. |
The Membership Interest was transferred to the undersigned on January 1, 2015 (the Transfer Date ). |
4. |
The Membership Interest is subject to the following restriction: the Membership Interest vests over a period of three years from the Transfer Date. If the undersigned ceases to perform services to or for the benefit of the Company and/or its subsidiary, as applicable, for any reason prior to vesting, the unvested Membership Interest will automatically be forfeited and cancelled without any payment with respect thereto. |
8
5. |
The fair market value of the property (the Membership Interest) on the Transfer Date with respect to which the election is being made, determined without regard to any lapse restrictions and in accordance with Revenue Procedure 93-27 = $0. |
6. |
The amount paid by the undersigned for the Membership Interest = $0. |
7. |
The amount to include in gross income = $0. |
The undersigned taxpayer will:
|
Not later than 30 days after the Transfer Date shown in paragraph 3 above, file this election with the Internal Revenue Service office with which the taxpayers most recent Federal income tax return was filed. |
|
Provide copies of this election to (a) the person for whom the services are performed in connection with which the Membership Interest was transferred, and (b) the person to whom the Membership Interest was transferred, if the recipient of the Membership Interest was not the person performing the services in connection with which the Membership Interest was transferred. |
|
Include a copy of this election with his or her Federal income tax return for the taxable year in which the Membership Interest was transferred. |
Date: | Name: | |||||||
9
Exhibit B
CONFIDENTIALITY, NON-COMPETITION, NON-SOLICITATION AND
INTELLECTUAL PROPERTY AGREEMENT
THIS CONFIDENTIALITY, NON-COMPETITION, NON-SOLICITATION AND INTELLECTUAL PROPERTY AGREEMENT (the Agreement ) is dated as of January 1, 2015 and is entered into by and between J. Alexanders Holdings, LLC (the Company ), and ____________ (the Employee ). In consideration of the mutual covenants and agreements set forth herein and otherwise stated in the unit grant agreement to which this Agreement is attached as Exhibit B, the parties agree as follows:
1. Purpose . The purpose of this Agreement is to recognize Employees significant contributions to the overall financial performance and success of the Company and its affiliates and to protect the Companys and its affiliates business interests through the addition of restrictive covenants.
2. Confidential Information . Employee will occupy a position of trust and confidence and will have access to and learn substantial information about the Company and its affiliates and their respective operations that is confidential or not generally known in the industry including, without limitation, information that relates to purchasing, sales, customers, marketing, the financial and pricing positions and financing arrangements, and the internal business policies and practices of the Company and its affiliates. Employee agrees that all such information is proprietary or confidential, or constitutes trade secrets and is the sole property of the Company and/or its affiliates, as the case may be. Employee will keep confidential and, outside the scope of Employees duties and responsibilities with the Company and/or its affiliates, as the case may be, will not reproduce, copy or disclose to any other person or firm, any such information or any documents or information relating to the Companys or its affiliates methods, processes, customers, accounts, analyses, systems, charts, programs, procedures, correspondence or records, or any other documents used or owned by the Company or any of its affiliates, nor will Employee advise, discuss with or in any way assist any other person, firm or entity in obtaining or learning about any of the items described in this section. Accordingly, during the period of Employees Employment and at all times thereafter Employee will not disclose, or permit or encourage anyone else to disclose, any such information, nor will Employee utilize any such information, either alone or with others, outside the scope of Employees duties and responsibilities with the Company and/or its affiliates, as the case may be.
3. Non-Competition During Period of Employment . During the period of Employees Employment with the Company and/or its affiliates, as the case may be, Employee will devote such business time, attention and energies reasonably necessary to the diligent and faithful performance of the services to the Company and/or its affiliates, as the case may be, and will not engage in any way whatsoever, directly or indirectly, in any business that is a direct competitor with the Companys or its affiliates principal business, nor solicit customers, suppliers or employees of the Company or affiliates on behalf of, or in any other manner work for or assist any business which is a direct competitor with the Companys or its affiliates principal business. In addition, during the period of Employees Employment with the Company and/or its affiliates, as the case may be, Employee will undertake no planning for or organization of any business activity
10
competitive with the work performed as an employee of the Company and/or its affiliates, as the case may be, and Employee will not combine or conspire with any other employee of the Company and its affiliates or any other person for the purpose of organizing any such competitive business activity.
4. Non-Solicitation . The parties acknowledge that Employee will acquire substantial knowledge and information concerning the business of the Company and its affiliates as a result of employment. The parties further acknowledge that the scope of business in which the Company and its affiliates are engaged as of the date hereof is national and very competitive and one in which few companies can successfully compete. Competition by employee in that business after the termination of Employees employment with the Company and/or its affiliates, as the case may be, would severely injure the Company and its affiliates. Accordingly, for a period of one (1) year after Employees termination of employment with the Company and/or its affiliates, as the case may be, for any reason whatsoever, Employee agrees, on behalf of any competitive firm or business, not to solicit any person or business that was at the time of termination of Employment and remains a supplier or prospective supplier or an employee of the Company or an affiliate.
5. Notice to Prospective Employers . Employee agrees that, with respect to each prospective employer with which Employee applies or interviews for Employment during the term of Employees Employment with the Company and/or its affiliates, as the case may be, and within one (1) year after the termination of the Employees Employment with the Company and/or its affiliates, as the case may be, Employee will inform the prospective employer of the existence of this Agreement and will provide the prospective employer with a copy of this Agreement.
6. Improvements and Inventions . Any and all improvements or inventions that Employee may make or participate in during Employees period of Employment with the Company and/or its affiliates, as the case may be, unless wholly unrelated to the business of the Company and its affiliates and not produced within the scope of Employees Employment hereunder, shall be the sole and exclusive property of the Company and its affiliates. Employee shall, whenever requested by the Company and its affiliates, execute and deliver any and all documents that the Company and its affiliates deems appropriate in order to apply for and obtain patents or copyrights in improvements or inventions or in order to assign and/or convey to the Company and its affiliates the sole and exclusive right, title and interest in and to such improvements, inventions, patents, copyrights or applications.
7. Successors and Assigns. This Agreement may not be assigned by Employee. This Agreement is binding upon, and inures to the benefit of, the Company and its affiliates and their successors and assigns.
8. Actions and Survival . The parties agree and acknowledge that the rights conveyed by this Agreement are of a unique and special nature and that the Company and its affiliates will not have an adequate remedy at law in the event of a failure by Employee to abide by its terms and conditions, nor will money damages adequately compensate for such injury. Therefore, in the event of a breach of this Agreement by Employee, the Company and its affiliates shall have the right, among other rights, to damages sustained thereby and to obtain an injunction or decree of specific performance from a court of competent jurisdiction to restrain or compel Employee to perform as agreed herein without posting any bond. For the avoidance of doubt, each affiliate of the Company is an intended third party beneficiary of this Agreement.
11
9. Other Agreements and Amendment . This Agreement shall not supersede or otherwise affect any Employment or other agreement to which the Employee is a party, whether or not such other agreement contains restrictive covenants. This Agreement may be amended only by a written document signed by both parties to this Agreement.
10. Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Tennessee, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction. Any litigation pertaining to this Agreement shall be adjudicated in courts located in Davidson County, Tennessee.
11. Severability . If any section, subsection or provision hereof is found for any reason whatsoever to be invalid or inoperative, that section, subsection or provision shall be deemed severable and shall not affect the force and validity of any other provision of this Agreement. If any covenant herein is determined by a court to be overly broad thereby making the covenant unenforceable, the parties agree and it is their desire that such court shall substitute a reasonable judicially enforceable limitation in place of the offensive part of the covenant and that as so modified the covenant shall be as fully enforceable as if set forth herein by the parties themselves in the modified form. The covenants of Employee in this Agreement shall each be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of Employee against the Company and its affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company and its affiliates of the covenants in this Agreement.
[Remainder of page is intentionally blank.]
12
IN WITNESS WHEREOF, each party has signed this Agreement on the date shown below.
J. ALEXANDERS HOLDINGS, LLC | EMPLOYEE | |||||||
By: | By: | |||||||
Name: | Name: | |||||||
Title: | ||||||||
Date: | Date: |
13
Exhibit 10.9
J. ALEXANDERS HOLDINGS, INC.
2015 EQUITY INCENTIVE PLAN
J. ALEXANDERs HOLDINGS, INC.
2015 EQUITY INCENTIVE PLAN
Section 1. | Purpose. |
This plan shall be known as the J. Alexanders Holdings, Inc. 2015 Equity Incentive Plan (the Plan). The purpose of the Plan is to promote the interests of J. Alexanders Holdings, Inc., a Tennessee corporation (the Company), its Subsidiaries and its shareholders by (i) attracting and retaining key officers, employees, and directors of, and consultants to, the Company, its Subsidiaries and Affiliates; (ii) motivating such individuals by means of performance-related incentives to achieve long-range performance goals; (iii) enabling such individuals to participate in the long-term growth and financial success of the Company; (iv) encouraging ownership of stock in the Company by such individuals; and (v) linking such individuals compensation to the long-term interests of the Company and its shareholders.
Section 2. | Definitions. |
As used in the Plan, the following terms shall have the meanings set forth below:
(a) Affiliate means each of the following: (a) any Subsidiary; (b) any corporation, trade or business (including, without limitation, a partnership or limited liability company) which is directly or indirectly controlled 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) by the Company or one of its Affiliates; (c) any trade or business (including, without limitation, a partnership or limited liability company) which directly or indirectly controls 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) of the Company; and (d) any other entity in which the Company or any of its Affiliates has a material equity interest, and, in the case of (b), (c) and (d), which is designated as an Affiliate by resolution of the Committee.
(b) Award means any Option, Stock Appreciation Right, Restricted Share Award, Restricted Share Unit, Performance Award, Other Stock-Based Award or any other right, interest or option relating to Shares or other property (including cash) granted pursuant to the provisions of the Plan.
(c) Award Agreement means any written agreement, contract or other instrument or document evidencing any Award, which shall have been duly executed and delivered on behalf of the Company, but which may, but need not, be executed or acknowledged by a Participant. For avoidance of doubt, Award Agreements include any employment agreement or change in control agreement between the Company and any Participant that refers to Awards and any letter or electronic mail notifying a Participant that he or she has received an Award.
(d) Board means the Board of Directors of the Company.
(e) Change in Control means, unless otherwise defined in the applicable Award Agreement, any of the following events:
(i) an event or series of events (other than an offering of Shares to the general public through a registration statement filed with the Securities and Exchange Commission) by which any person, entity or group, within the meaning of Section 13(d) or 14(d) under the Exchange Act, other than the Company, any of its Subsidiaries, any employee benefit plan thereof, becomes the beneficial owner, directly or indirectly, of more than 35% of the combined voting power of the voting securities of the Company;
(ii) Individuals who, as of the date hereof, constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Companys shareholders, was approved by a vote of at least a majority of the
2
directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board;
(iii) the consummation of a merger, consolidation, reorganization, or other business combination of the Company with any other entity, other than a merger, consolidation, reorganization or other business combination which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger, consolidation, reorganization or other business combination; or
(iv) the consummation of a sale, exchange or transfer of all or substantially all the assets of the Company and its Subsidiaries (taken as a whole), other than a sale or disposition of all or substantially all the assets of the Company and its Subsidiaries to an entity, more than 50% of the combined voting power of the voting securities of which are beneficially owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale;
Notwithstanding the foregoing, (i) unless otherwise provided in an applicable Award Agreement, with respect to Awards constituting a deferral of compensation subject to Section 409A of the Code, a Change in Control shall be limited to a change in the ownership of the Company, a change in the effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company as such terms are defined in Section 1.409A-3(i)(5) of the U.S. Treasury Regulations, and (ii) no Award Agreement shall define a Change in Control in such a manner that a Change in Control would be deemed to occur prior to the actual consummation of the event or transaction that results in a change of control of the Company (e.g., upon the announcement, commencement, or shareholder approval of any event or transaction that, if completed, would result in a change in control of the Company).
(f) Code means the Internal Revenue Code of 1986, as amended from time to time.
(g) Committee means the Compensation Committee of the Board or a subcommittee thereof, or such other committee designated by the Board to administer the Plan. To the extent that compensation realized in respect of Awards is intended to be performance based under Section 162(m) and the Committee is not comprised solely of individuals who are outside directors within the meaning of Section 162(m), the Committee may from time to time delegate some or all of its functions under the Plan to a committee or subcommittee composed of members that meet the relevant requirements.
(h) Consultant means any consultant or advisor who is a natural person and who provides services to the Company or its Affiliates, so long as such person (i) renders bona fide services that are not in connection with the offer and sale of the Companys securities in a capital raising transaction and (ii) does not directly or indirectly promote or maintain a market for the Companys securities.
(i) Covered Employee means any Employee who is, or could be, a covered employee within the meaning of Section 162(m) of the Code.
(j) Director means a member of the Board.
3
(k) Employee means a current or prospective officer or employee of the Company or any Affiliate.
(l) Exchange Act means the Securities Exchange Act of 1934, as amended from time to time.
(m) Fair Market Value means, with respect to Shares as of any date, the value of a Share determined as follows: (i) if the Shares are listed on any (x) established securities exchange (such as the New York Stock Exchange, the NASDAQ Global Market and the NASDAQ Global Select Market), (y) national market system or (z) automated quotation system on which the Shares are listed, quoted or traded, its Fair Market Value shall be the closing sales price for a Share as quoted on such exchange or system for such date or, if there is no closing sales price for a Share on the date in question, the closing sales price for a Share on the last preceding date for which such quotation exists, as reported in The Wall Street Journal or such other source as the Committee deems reliable; (ii) if the Shares are not listed on an established securities exchange, national market system or automated quotation system, but the Shares are regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a Share on such date, the high bid and low asked prices for a Share on the last preceding date for which such information exists, as reported in The Wall Street Journal or such other source as the Committee deems reliable; or (iii) in the event the Shares are neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized securities dealer, its Fair Market Value shall be established by the Committee in good faith.
(n) Grant Price means the price established at the time of grant of an SAR pursuant to Section 6 used to determine whether there is any payment due upon exercise of the SAR.
(o) Incentive Stock Option means an Option that is granted under Section 6 of the Plan and that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.
(p) Non-Qualified Stock Option means an Option that is granted under Sections 6 or 10 of the Plan and is not an Incentive Stock Option, including any Option that was intended to qualify as an Incentive Stock Option and fails to so qualify for any reason.
(q) Non-Employee Director means a member of the Board who is not an officer or employee of the Company or any Subsidiary of the Company.
(r) Option means any right granted to a Participant under the Plan allowing such Participant to purchase Shares at an Option Price and during such period or periods as the Committee shall determine.
(s) Option Price means the purchase price payable to purchase one Share upon the exercise of an Option.
(t) Other Stock-Based Award means any Award granted under Section 9 of the Plan.
(u) Participant means any Employee, Director, or Consultant who receives an Award under the Plan.
(v) Performance Award means any Award granted under Section 8 of the Plan.
(w) Person means any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity.
4
(x) Restricted Share means any Share granted under Sections 7 or 10 of the Plan with the restriction that the holder may not sell, transfer, pledge or assign such Share and with such other restrictions as the Committee, in its discretion, may impose.
(y) Restricted Share Unit means an Award granted under Sections 7 or 10 of the Plan that is valued by reference to a Share, which value may be paid to the Participant by delivery of cash, Shares or such other property, as the Committee shall determine, upon the lapse of restrictions as the Committee, in its discretion, may impose.
(z) Section 16 means Section 16 of the Exchange Act and the rules promulgated thereunder and any successor provision thereto as in effect from time to time.
(aa) Section 162(m) means Section 162(m) of the Code and the regulations promulgated thereunder and any successor provision thereto as in effect from time to time.
(bb) Shares means shares of the Class A common stock, $.0001 par value, of the Company.
(cc) Stock Appreciation Right or SAR means a stock appreciation right granted under Sections 6 or 10 of the Plan that entitles the holder to receive, with respect to each Share encompassed by the exercise of such SAR, the amount determined by the Committee and specified in an Award Agreement. In the absence of such a determination, the holder shall be entitled to receive, with respect to each Share encompassed by the exercise of such SAR, the excess of the Fair Market Value of such Share on the date of exercise over the Grant Price applicable to such SAR.
(dd) Subsidiary means any Person (other than the Company) of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company.
(ee) Substitute Awards means Awards granted solely in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines.
(ff) Termination of Service means:
(i) As to a Consultant, the time when the engagement of a Participant as a Consultant to the Company or an Affiliate is terminated for any reason, with or without cause, including, without limitation, by resignation, discharge, death or retirement, but excluding terminations where the Consultant simultaneously commences or remains in employment or service with the Company or any Affiliate.
(ii) As to a Non-Employee Director, the time when a Participant who is a Non-Employee Director ceases to be a Director for any reason, including, without limitation, a termination by resignation, failure to be elected, death or retirement, but excluding terminations where the Participant simultaneously commences or remains in employment or service with the Company or any Affiliate.
(iii) As to an Employee, the time when the employee-employer relationship between a Participant and the Company or any Affiliate is terminated for any reason, including, without limitation, a termination by resignation, discharge, death, disability or retirement; but excluding terminations where the Participant simultaneously commences or remains in employment or service with the Company or any Affiliate.
5
The Committee, in its sole discretion, shall determine the effect of all matters and questions relating to any Termination of Service, including, without limitation, the question of whether a Termination of Service resulted from a discharge for cause and all questions of whether particular leaves of absence constitute a Termination of Service; provided , however , that, with respect to Incentive Stock Options, unless the Committee otherwise provides in the terms of the Award Agreement or otherwise, or as otherwise required by applicable law, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Service only if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then applicable regulations and revenue rulings under said Section. For purposes of the Plan, a Participants employee-employer relationship or consultancy relations shall be deemed to be terminated in the event that the Affiliate employing or contracting with such Participant ceases to remain an Affiliate following any merger, sale of stock or other corporate transaction or event (including, without limitation, a spin-off).
Section 3. | Administration. |
3.1 Authority of Committee. The Plan shall be administered by the Committee, which shall be appointed by and serve at the pleasure of the Board; provided, however, with respect to Awards to Non-Employee Directors, all references in the Plan to the Committee shall be deemed to be references to the Board. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority in its discretion to:
(i) designate Participants;
(ii) determine eligibility for participation in the Plan and decide all questions concerning eligibility for and the amount of Awards under the Plan;
(iii) determine the type or types of Awards to be granted to a Participant and whether such Awards are to be granted singly, in combination, or in tandem;
(iv) determine the number of Shares to be covered by, or with respect to which payments, rights or other matters are to be calculated in connection with Awards;
(v) determine the timing, terms, and conditions of any Award, including any restrictions or vesting requirements;
(vi) accelerate the time at which all or any part of an Award may be settled or exercised;
(vii) determine whether, to what extent, and under what circumstances, Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited or suspended;
(viii) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property, and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee;
(ix) determine whether, to what extent and under what circumstances any Award shall be canceled, suspended or subjected to additional restrictions, including in connection with any Share ownership guidelines or insider trading policies of the Company;
6
(x) grant Awards as an alternative to, or as the form of payment for grants or rights earned or payable under, other bonus or compensation plans, arrangements or policies of the Company or any Affiliate;
(xi) grant Substitute Awards on such terms and conditions as the Committee may prescribe, subject to compliance with the Incentive Stock Option rules under Section 422 of the Code and the nonqualified deferred compensation rules under Section 409A of the Code, where applicable;
(xii) make all determinations under the Plan concerning any Participants Termination of Service with the Company or an Affiliate, including whether such termination occurs by reason of cause, disability, retirement (each, as may be defined by the Committee from time to time or set forth in an Award Agreement), or in connection with a Change in Control and whether a leave constitutes a Termination of Service;
(xiii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan;
(xiv) to the extent permitted by Section 14.2 and not prohibited by Section 6.2 , amend or modify the terms of any Award at or after grant;
(xv) correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent that the Committee shall deem desirable to carry it into effect;
(xvi) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and
(xvii) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan, subject to the exclusive authority of the Board under Section 14 hereunder to amend or terminate the Plan.
3.2 Committee Discretion Binding. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company and any Affiliate, any Participant and any holder or beneficiary of any Award. A Participant or other holder of an Award may contest a decision or action by the Committee with respect to such Person or Award only on the grounds that such decision or action was arbitrary or capricious or was unlawful, and any review of such decision or action shall be limited to determining whether the Committees decision or action was arbitrary or capricious or was unlawful.
3.3 Delegation. Subject to the terms of the Plan, the Committees charter and applicable law, the Committee may delegate to one or more officers or managers of the Company or of any Affiliate, or to a Committee of such officers or managers, the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to or to cancel, modify or waive rights with respect to, or to alter, discontinue, suspend or terminate Awards held by Participants who are not officers or directors of the Company for purposes of Section 16 or who are otherwise not subject to Section 16.
7
Section 4. | Shares Available For Awards. |
4.1 Shares Available .
(a) Subject to the provisions of Section 4.2 hereof, a total of [ ] Shares shall be authorized for grant under the Plan. Of such Shares authorized, a total of [ ] Shares may be granted pursuant to the exercise of Incentive Stock Options.
(b) If any Shares subject to an Award are forfeited or expire or an Award is settled in cash (in whole or in part), the Shares subject to such Award shall, to the extent of such forfeiture, expiration or cash settlement, again be available for Awards under the Plan. In the event that withholding tax liabilities arising from an Award other than an Option or Stock Appreciation Right are satisfied by the tendering of Shares (either actually or by attestation) or by the withholding of Shares by the Company, the Shares so tendered or withheld shall be added to the Shares available for Awards under the Plan. Notwithstanding anything to the contrary contained herein, the following Shares shall not be added to the Shares authorized for grant under paragraph (a) of this Section: (i) Shares tendered by the Participant or withheld by the Company in payment of the Option Price or to satisfy any tax withholding obligation with respect to an Option or SAR, and (ii) Shares subject to a SAR that are not issued in connection with the stock settlement of the SAR on exercise thereof, and (iii) Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of Options. The payment of dividend equivalents in cash in conjunction with any outstanding Awards shall not be counted against the Shares available for issuance under the Plan.
(c) Notwithstanding any provision in the Plan to the contrary, and subject to Section 4.2 , the maximum aggregate number of Shares with respect to one or more Awards that may be granted to any one person during any calendar year shall be [1,000,000] and the maximum aggregate amount that may be paid in cash to any one person during any calendar year with respect to one or more Awards payable in cash shall be [$5,000,000] ; provided , however , that the foregoing limitations shall not apply until the earliest of: (a) the first material modification of the Plan (including any increase in the shares authorized pursuant to Section 4.1 ); (b) the issuance of all of the Shares reserved for issuance under the Plan; (c) the expiration of the Plan; (d) the first meeting of shareholders at which members of the Board are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security of the Company under Section 12 of the Exchange Act; and (e) such other date required by Section 162(m). To the extent required by Section 162(m), Shares subject to Awards which are canceled shall continue to be counted against the limits set forth in this Section 4.1(c).
(d) Adjustments . In the event that any dividend (other than a normal, recurring dividend) or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares, then the Committee shall in an equitable and proportionate manner as deemed appropriate by the Committee (and, as applicable, in such manner as is consistent with Sections 162(m), 422 and 409A of the Code and the regulations thereunder) either: (i) adjust any or all of (1) the aggregate number and class of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted under the Plan; (2) the number and class of Shares or other securities of the Company (or number and kind of other property) subject to outstanding Awards, provided that the number of Shares subject to any Award shall always be a whole number; (3) the grant or exercise price per Share with respect to any Award under the Plan; (4) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (5) the limits on the number of Shares or Awards that may be granted to Participants under the Plan in any calendar year; (ii) provide for an equivalent award in respect of securities of the surviving entity of any merger, consolidation or other transaction or event having a similar effect; or (iii) make provision for a cash payment to the holder of an outstanding Award.
8
(e) Substitute Awards; Future Pre-Existing Plans . Any Shares issued by the Company as Substitute Awards in connection with the assumption or substitution of outstanding grants from any acquired corporation shall not reduce the Shares available for Awards under the Plan or count against any limits set forth in the Plan.
(f) Sources of Shares Deliverable Under Awards . Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares, treasury shares or issued Shares which have been reacquired by the Company.
Section 5. | Eligibility. |
Any Employee, Director or Consultant shall be eligible to be designated a Participant; provided, however, that Non-Employee Directors shall only be eligible to receive Awards granted consistent with Section 10 ; provided further, that any award to an Employee who is a prospective employee or officer shall be conditioned upon such individual becoming an employee or officer of the Company or its Affiliate. The terms and conditions of Awards need not be the same with respect to each Participant.
Section 6. | Stock Options; Stock Appreciation Rights. |
6.1 Grant . Subject to the provisions of the Plan and other applicable legal requirements, the Committee shall have sole and complete authority to determine the Participants to whom Options and SARs shall be granted, the number of Shares subject to each Award, the exercise price and the conditions and limitations applicable to the exercise of each Option and SAR. An Option may be granted with or without a related SAR. A SAR may be granted with or without a related Option. The grant of an Option or SAR shall take place when the Committee by resolution, written consent or other appropriate action determines to grant such Option or SAR for a particular number of Shares to a particular Participant at a particular Option Price or Grant Price. The Committee shall have the authority to grant Incentive Stock Options and to grant Non-Qualified Stock Options. In the case of Incentive Stock Options, the terms and conditions of such grants shall be subject to and comply with Section 422 of the Code, as from time to time amended, and any regulations implementing such statute.
6.2 Price. The Committee in its sole discretion shall establish the Option Price at the time each Option is granted and the Grant Price at the time each SAR is granted. Except in the case of Substitute Awards, the Option Price of an Option, and the Grant Price of an SAR, may not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant of such Option or SAR. Notwithstanding the foregoing and except as permitted by the provisions of Section 4.2 hereof, the Committee shall not have the power to (i) amend the terms of previously granted Options or SARs to reduce the Option Price of such Options or the Grant Price of such SARs, (ii) cancel previously granted Options or SARs and grant substitute Options or SARs with a lower Option Price or Grant Price than the cancelled Options or SARs, or (iii) cancel previously granted Options or SARs in exchange for a cash payment when the Option Price or Grant Price exceeds the Fair Market Value of the underlying Shares (other than in connection with a Change in Control), in each case without the approval of the Companys shareholders.
6.3 Term. Subject to the Committees authority under Section 3.1 and the provisions of Section 6.6 , each Option and SAR and all rights and obligations thereunder shall expire on the date determined by the Committee and specified in the Award Agreement. The Committee shall be under no duty to provide terms of like duration for Options or SARs granted under the Plan. Notwithstanding the foregoing, but subject to the last sentence of Section 6.4(a) , no Option or SAR shall be exercisable after the expiration of ten (10) years from the date such Option or SAR was granted.
9
6.4 Exercise .
(a) Each Option and SAR shall be exercisable at such times and subject to such terms and conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement or thereafter. The Committee shall have full and complete authority to determine whether an Option or SAR will be exercisable in full at any time or from time to time during the term of the Option or SAR, or to provide for the exercise thereof in such installments, upon the occurrence of such events and at such times during the term of the Option or SAR as the Committee may determine. An Award Agreement may provide that the period of time over which an Option or SAR, other than an Incentive Stock Option, may be exercised shall be automatically extended if on the scheduled expiration of such Award, the Participants exercise of such Award would violate applicable securities law; provided, however, that during the extended exercise period the Option or SAR may only be exercised to the extent the Option or SAR was exercisable in accordance with its terms immediately prior to such scheduled expiration date; provided further, however, that such extended exercise period shall end not later than thirty (30) days after the exercise of such Option or SAR first would no longer violate such laws.
(b) The period during which the right to exercise, in whole or in part, an Option or SAR vests in the Participant shall be set by the Committee and the Committee may determine that an Option or SAR may not be exercised in whole or in part for a specified period after it is granted. Such vesting may be based on service with the Company or any Affiliate, any performance criteria, or any other criteria selected by the Committee, and, except as limited by the Plan, at any time after the grant of an Option or SAR, the Committee, in its sole discretion and subject to whatever terms and conditions it selects, may accelerate the period during which an Option or SAR vests.
(c) An Option or SAR may be exercised in whole or in part at any time, with respect to whole Shares only, within the period permitted thereunder for the exercise thereof, and shall be exercised by (i) written or electronic notice of intent to exercise the Option or SAR, in such form as the Committee may prescribe, delivered to the Company at its principal office or such other office as the Committee may from time to time direct, (ii) the delivery of such representations and documents as the Committee, in its sole discretion, deems necessary or advisable to effect compliance with applicable law, and (iii) payment in full to the Company at the direction of the Committee of the amount of the Option Price for the number of Shares with respect to which the Option is then being exercised.
(d) Payment of the Option Price shall be made (i) in cash or cash equivalents, (ii) at the discretion of the Committee, by transfer, either actually or by attestation, to the Company of unencumbered Shares previously acquired by the Participant, valued at the Fair Market Value of such Shares on the date of exercise (or next succeeding trading date, if the date of exercise is not a trading date), together with any applicable withholding taxes, such transfer to be upon such terms and conditions as determined by the Committee, (iii) at the discretion of the Committee, by a cashless (broker-assisted) exercise that complies with applicable laws, (iv) at the discretion of the Committee, by withholding Shares (net-exercise) otherwise deliverable to the Participant pursuant to the Option having an aggregate Fair Market Value at the time of exercise equal to the total Option Price or (v) any combination of (i) through (iv). Until the optionee has been issued the Shares subject to such exercise, he or she shall possess no rights as a shareholder with respect to such Shares.
(e) At the Committees discretion, the amount payable to the Participant as a result of the exercise of a SAR may be settled in cash, Shares or other property, or any combination thereof. A fractional Share shall not be deliverable upon the exercise of a SAR but a cash payment will be made in lieu thereof.
(f) An Award Agreement may provide, or be amended to provide, that if on the last day of the term of an Option or SAR, the Fair Market Value of one Share exceeds the Option Price or Grant Price of such Award, the Participant has not exercised the Option or SAR and the Option or SAR has not expired, the Option or SAR shall be deemed to have been exercised by the Participant on such day with payment made by withholding Shares otherwise issuable in connection with the exercise of the Option or SAR. In such event, the Company shall deliver to the Participant the number of Shares for which the Award was deemed exercised, less the number of Shares required to be withheld for the payment of the total purchase price (in the case of an Option) and required withholding taxes.
10
6.5 Termination of Service. Except as otherwise provided in the applicable Award Agreement, in the event of a Participants Termination of Service, the outstanding Options and SARs held by such Participant shall terminate on the date of such Termination of Service and be forfeited. Notwithstanding the foregoing provisions of this Section 6.5 to the contrary, the Committee may determine in its discretion that an Option or SAR may be exercised following any such Termination of Service, whether or not exercisable at the time of such Termination of Service; provided, however, that in no event may an Option or SAR be exercised after the expiration date of such Option or SAR specified in the applicable Award Agreement, except as provided in the last sentence of Section 6.4(a) .
6.6 Ten Percent Stock Rule. Notwithstanding any other provisions in the Plan, if at the time an Option is otherwise to be granted pursuant to the Plan, the optionee or rights holder owns directly or indirectly (within the meaning of Section 424(d) of the Code) Shares of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent or Subsidiary corporations (within the meaning of Section 422(b)(6) of the Code), then any Incentive Stock Option to be granted to such optionee or rights holder pursuant to the Plan shall satisfy the requirement of Section 422(c)(5) of the Code, and the Option Price shall be not less than one hundred ten percent (110%) of the Fair Market Value of the Shares of the Company, and such Option by its terms shall not be exercisable after the expiration of five (5) years from the date such Option is granted.
6.7 Substitution of SARs . The Committee may provide in the applicable Award Agreement evidencing the grant of an Option, at or after grant, that the Committee, in its sole discretion, shall have the right to substitute a Stock Appreciation Right for such Option at any time prior to or upon exercise of such Option; provided that such Stock Appreciation Right shall be exercisable with respect to the same number of Shares for which such substituted Option would have been exercisable, shall have the same exercise price and vesting schedule as the substituted Option, and shall have a Stock Appreciation Right term equal in length to the remaining Option term of the substituted Option.
Section 7. | Restricted Shares And Restricted Share Units. |
7.1 Grant .
(a) Subject to the provisions of the Plan and other applicable legal requirements, the Committee shall have sole and complete authority to determine the Participants to whom Restricted Shares and Restricted Share Units shall be granted, the number of Restricted Shares and/or the number of Restricted Share Units to be granted to each Participant, the duration of the period during which, and the conditions under which, the Restricted Shares and Restricted Share Units may be forfeited to the Company, and the other terms and conditions of such Awards. The Restricted Share and Restricted Share Unit Awards shall be evidenced by Award Agreements in such form as the Committee shall from time to time approve, which agreements shall comply with and be subject to the terms and conditions provided hereunder and any additional terms and conditions established by the Committee that are consistent with the terms of the Plan.
(b) Each Restricted Share and Restricted Share Unit Award made under the Plan shall be for such number of Shares as shall be determined by the Committee and set forth in the Award Agreement containing the terms of such Restricted Share or Restricted Share Unit Award. Such agreement shall set forth a period of time during which the grantee must remain in the continuous employment of the Company in order for the forfeiture and transfer restrictions to lapse. If the Committee so determines, the restrictions may lapse during such restricted period in installments with respect to specified portions of the Shares covered by the Restricted Share or Restricted Share Unit Award. The Award Agreement may also, in the discretion of the Committee, set forth performance or other conditions that will subject the Shares to forfeiture and transfer restrictions. The Committee may, at its discretion, waive all or any part of the restrictions applicable to any or all outstanding Restricted Share and Restricted Share Unit Awards.
11
7.2 Dividends and Other Distributions .
(a) Prior to the lapse of any applicable transfer restrictions, Participants holding Restricted Shares shall be credited with any dividends payable in cash, Shares or other property paid with respect to such Restricted Shares while they are so held, unless determined otherwise by the Committee and set forth in the Award Agreement. The Committee may apply any restrictions to such dividends that the Committee deems appropriate. Except as set forth in the Award Agreement or otherwise determined by the Committee, in the event (a) of any adjustment as provided in Section 4.2 , or (b) any cash, Shares or other property is paid by the Company as a dividend on Restricted Shares, such cash, Shares or other property payable to a Participant on such Restricted Shares shall be subject to the same terms and conditions, including any transfer restrictions, as relate to the original Restricted Shares and shall be paid to the Participant when and if the applicable Restricted Shares vest.
(b) Unless otherwise provided in the applicable Award Agreement, Participants holding Restricted Share Units shall not be credited with any dividends paid with respect to the underlying Shares of such Restricted Share Units. If the applicable Award Agreement specifies that a Participant will be entitled to receive dividend equivalent rights, (i) the amount of any such dividend equivalent right shall equal the amount that would be payable to the Participant as a shareholder in respect of a number of Shares equal to the number of Restricted Share Units then credited to the Participant, (ii) any such dividend equivalent right shall be paid in accordance with the Companys payment practices as may be established from time to time and as of the date on which such dividend would have been payable in respect of outstanding Shares, and (iii) unless otherwise provided in the applicable Award Agreement, dividend equivalents will not be paid in respect of Restricted Share Units that are not yet vested unless and until such Restricted Share Units vest.
7.3 Transfer Restrictions on Restricted Shares. At the time of the grant of a Restricted Share Award, a certificate representing the number of Shares awarded thereunder may be registered in the name of the grantee. Such certificate shall be held by the Company or any custodian appointed by the Company for the account of the grantee subject to the terms and conditions of the Plan, and shall bear such a legend setting forth the restrictions imposed thereon as the Committee, in its discretion, may determine. Alternatively, the Committee may, in its discretion, provide that a Participants ownership of Restricted Shares prior to the lapse of any transfer restrictions or any other applicable restrictions shall, in lieu of such certificates, be evidenced by a book entry ( i.e ., a computerized or manual entry) in the records of the Company or its designated agent in the name of the Participant who has received such Award, and confirmation and account statements sent to the Participant with respect to such book-entry Shares may bear the restrictive legend referenced in the preceding sentence. Such records of the Company or such agent shall, absent manifest error, be binding on all Participants who receive Restricted Share Awards evidenced in such manner. The holding of Restricted Shares by the Company or such an escrow holder, or the use of book entries to evidence the ownership of Restricted Shares, in accordance with this Section 7.3 , shall not affect the rights of Participants as owners of the Restricted Shares awarded to them, nor affect the restrictions applicable to such shares under the Award Agreement or the Plan, including the transfer restrictions.
7.4 Other Rights of Restricted Shareholders . Unless otherwise provided in the applicable Award Agreement, the grantee shall have all other rights of a shareholder with respect to Restricted Shares, including the right to vote such Shares, subject to the following restrictions: (i) the grantee shall not be entitled to delivery of the stock certificate until the expiration of the restricted period and the fulfillment of any other restrictive conditions set forth in the Award Agreement with respect to such Shares; (ii) none of the Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of during such restricted period or until after the fulfillment of any such other restrictive conditions; and (iii) except as otherwise determined by the Committee at or after grant, all of the Shares (including any dividends accrued and held thereon) shall be forfeited and all rights of the
12
grantee to such Shares shall terminate, without further obligation on the part of the Company, unless the grantee remains in the continuous employment of the Company for the entire restricted period in relation to which such Shares were granted and unless any other restrictive conditions relating to the Restricted Share Award are met.
7.5 Termination of Restrictions on Restricted Shares. At the end of the restricted period and provided that any other restrictive conditions of the Restricted Share Award are met, or at such earlier time as otherwise determined by the Committee, all restrictions set forth in the Award Agreement relating to the Restricted Share Award or in the Plan shall lapse as to the restricted Shares subject thereto, and a stock certificate for the appropriate number of Shares, free of the restrictions and restricted stock legend, shall be delivered to the Participant or the Participants beneficiary or estate, as the case may be (or, in the case of book-entry Shares, such restrictions and restricted stock legend shall be removed from the confirmation and account statements delivered to the Participant or the Participants beneficiary or estate, as the case may be, in book-entry form) and any dividends or dividend equivalents accrued thereon shall be paid.
7.6 Payment of Restricted Share Units. Each Restricted Share Unit shall have a value equal to the Fair Market Value of a Share. Restricted Share Units shall be paid in cash, Shares, other securities or other property, as determined in the sole discretion of the Committee, upon the lapse of the restrictions applicable thereto, or otherwise in accordance with the applicable Award Agreement. Except as otherwise determined by the Committee at or after grant, Restricted Share Units may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of, and all Restricted Share Units (and any dividend equivalents associated therewith) and all rights of the grantee thereto shall terminate, without further obligation on the part of the Company, unless the grantee remains in continuous employment of the Company for the entire restricted period in relation to which such Restricted Share Units were granted and unless any other restrictive conditions relating to the Restricted Share Unit Award are met. Except as otherwise provided in the Plan or the applicable Award Agreement, a Participant shall have no rights of a shareholder with respect to Restricted Share Units.
7.7 Termination of Service. Except as otherwise provided in the applicable Award Agreement, in the event of a Participants Termination of Service, the Participants rights in unvested Restricted Shares and unvested Restricted Share Units (and any accrued dividends or dividend equivalent rights associated therewith) then subject to restrictive conditions shall lapse, and such Restricted Shares and Restricted Share Units shall be forfeited and surrendered to the Company without consideration. Notwithstanding the foregoing provisions of this Section 7.7 to the contrary, the Committee may provide in its discretion that a Participants rights in unvested Restricted Shares and Restricted Share Units shall not lapse in the event of certain Terminations of Service, such as termination by the Company without cause, by a Participant voluntarily, or by reason or death, disability or retirement (each, as may be defined by the Committee from time to time or set forth in an Award Agreement).
Section 8. | Performance Awards. |
8.1 Grant . The Committee shall have sole and complete authority to determine the Participants who shall receive a Performance Award, which shall consist of a right that is (i) denominated in cash, Shares or other property, (ii) valued, as determined by the Committee, in accordance with the achievement of such performance goals during such performance periods as the Committee shall establish, and (iii) payable at such time and in such form as the Committee shall determine.
8.2 Terms and Conditions. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award and the amount and kind of any payment or transfer to be made pursuant to any Performance Award, and, subject to Section 11 of the Plan, may amend specific provisions of the Performance Award; provided, however, that such amendment may not adversely affect existing Performance Awards made within a performance period commencing prior to implementation of the amendment.
13
8.3 Dividends and Other Distributions. Notwithstanding any provision of this Plan to the contrary, dividends or dividend equivalents on Performance Awards denominated in Shares may not be paid to a Participant (but they may be accumulated for eventual payment) until such time as the Committee determines that the performance criteria underlying such Performance Awards have been satisfied.
8.4 Payment of Performance Awards. An Award Agreement may provide that Performance Awards may be paid in a lump sum or in installments following the close of the performance period or, in accordance with the procedures established by the Committee, on a deferred basis, subject to the requirements of Section 409A of the Code. Notwithstanding the foregoing, and to the extent permissible under Section 162(m) (if applicable), the Committee may in its discretion, waive any performance goals and/or other terms and conditions relating to a Performance Award. A Participants rights to any Performance Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of in any manner, except by will or the laws of descent and distribution, and/or except as the Committee may determine at or after grant.
8.5 Termination of Service. Except as otherwise provided in the applicable Award Agreement, in the event of a Participants Termination of Service prior to the close of the applicable performance period, the Participants rights in unvested Performance Awards then subject to restrictive conditions shall lapse, and such Performance Awards shall be forfeited and surrendered to the Company without consideration. Notwithstanding the foregoing provisions of this Section 8.5 to the contrary, the Committee may provide in its discretion that a Participants rights in unvested Performance Awards shall not lapse in the event of certain Terminations of Service, such as termination by the Company without cause, by a Participant voluntarily, or by reason of death, disability or retirement (each, as may be defined by the Committee from time to time or set forth in an Award Agreement).
Section 9. | Other Stock-Based Awards. |
The Committee shall have the authority to determine the Participants who shall receive an Other Stock-Based Award, which shall consist of any right that is (i) not an Award described in Sections 6 , 7 , or 8 above and (ii) an Award of Shares or an Award denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares or other property (including, without limitation, securities convertible into Shares), as deemed by the Committee to be consistent with the purposes of the Plan. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of any such Other Stock-Based Award.
Section 10. | Non-Employee Director Awards. |
10.1 Non-Employee Director Awards . The Board may provide that all or a portion of a Non-Employee Directors annual retainer, meeting fees and/or other awards or compensation as determined by the Board, be payable (either automatically or at the election of a Non-Employee Director) in the form of Non-Qualified Stock Options, Restricted Shares, Restricted Share Units and/or Other Stock-Based Awards under the Plan, including unrestricted Shares. The Board shall determine the terms and conditions of any such Awards, including the terms and conditions which shall apply upon a termination of the Non-Employee Directors service as a member of the Board, and shall have full power and authority in its discretion to administer such Awards, subject to the terms of the Plan and applicable law. Subject to applicable legal requirements, the Board may also grant Awards to Non-Employee Directors pursuant to the terms of the Plan, including any Award described in Sections 6 , 7 or 9 above.
14
10.2 Non-Employee Director Limits . Notwithstanding anything in this Plan to the contrary, the maximum number of Shares subject to Awards granted during a calendar year to any Non-Employee Director shall not exceed [$ 500,000] in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes and excluding, for this purpose, the value of any dividends or dividend equivalents paid) (the Non-Employee Director Limit ). The Board may not, without the approval of the shareholders, increase the Non-Employee Director Limit.
Section 11. | Provisions Applicable To Covered Employees And Performance Awards. |
11.1 Covered Employees . Notwithstanding anything in the Plan to the contrary, unless the Committee determines that a Performance Award to be granted to a Covered Employee should not qualify as performance-based compensation for purposes of Section 162(m), Performance Awards granted to Covered Employees shall be subject to the terms and provisions of this Section 11 ; provided , however , that this Section 11 need not apply to Awards granted (or if required by Section 162(m), paid) prior to the earliest of: (a) the first material modification of the Plan (including any increase in the shares authorized pursuant to Section 4.1 ); (b) the issuance of all of the Shares reserved for issuance under the Plan; (c) the expiration of the Plan; (d) the first meeting of shareholders at which members of the Board are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security of the Company under Section 12 of the Exchange Act; and (e) such other date required by Section 162(m). Unless otherwise determined by the Committee, if any provision of the Plan or any Award Agreement relating to such an Award does not comply or is inconsistent with Section 162(m), such provision shall be construed or deemed amended to the extent necessary to conform to such requirements, and no provision shall be deemed to confer upon the Committee discretion to increase the amount of compensation otherwise payable to a Covered Employee in connection with any such Award upon the attainment of the performance criteria established by the Committee.
11.2 Performance Goals. The Committee may grant Performance Awards to Covered Employees based solely upon the attainment of performance targets related to one or more performance goals selected by the Committee from among the goals specified below. For the purposes of this Section 11 , performance goals shall be limited to one or more of the following Company, Subsidiary, operating unit, restaurant concept or division financial performance measures:
(a) | total sales or revenues; |
(b) | sales or revenue per restaurant or other unit; |
(c) | earnings before interest, taxes, depreciation and/or amortization; |
(d) | operating income or profit (before or after taxes); |
(e) | operating margins, gross margins or cash margin; |
(f) | operating efficiencies; |
(g) | return on equity, assets (or net assets), capital, capital employed or investment; |
(h) | net income (before or after taxes); |
(i) | pre- or after-tax income (before or after allocation of corporate overhead and bonuses); |
(j) | earnings (gross, net, pre-tax, after-tax or per share), which may, but need not, exclude interest, depreciation, amortization, taxes and other items; |
15
(k) | utilization; |
(l) | improvement in or attainment of expense levels or working capital levels, including cash, inventory and accounts receivable; |
(m) | gross or net profit margins; |
(n) | stock price or total shareholder return; |
(o) | cash flow or cash flow per Share (before or after dividends); |
(p) | appreciation in and/or maintenance of the price of Shares or other publicly-traded securities of the Company; |
(q) | debt reduction; |
(r) | year-end cash; |
(s) | financial ratios, including those measuring activity, leverage, liquidity or profitability, cost of capital or asset levels; |
(t) | financing and other capital-raising transactions; |
(u) | division revenue; |
(v) | strategic business objectives, consisting of one or more objectives based on meeting specified cost targets, business expansion goals or goals relating to acquisitions or divestitures; or |
(w) | any combination thereof. |
Each goal may be expressed on an absolute and/or relative basis, may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company or any Subsidiary, operating unit, restaurant concept or division of the Company and/or the past or current performance of other companies, and in the case of earnings-based measures, may use or employ comparisons relating to capital, stockholders equity and/or Shares outstanding, or to assets or net assets. The Committee may appropriately adjust any evaluation of performance under criteria set forth in this Section 11.2 to exclude any of the following events that occurs during a performance period: (i) asset write-downs, (ii) litigation or claim judgments or settlements, (iii) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (iv) accruals for reorganization and restructuring programs, (v) an event either not directly related to the operations of the Company or not within the reasonable control of the Companys management, (vi) pre-opening costs, and (vi) any extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30, and/or in managements discussion and analysis of financial condition and results of operations appearing in the Companys annual report (or quarterly report on Form 10-Q) to shareholders for the applicable year; provided, that the Committee must commit to make any such adjustments, and shall specify such adjustments, within the time for prescribing performance targets generally as described in Section 11.4 .
11.3 Negative Discretion Allowed . Notwithstanding any provision of the Plan (other than Section 13 ), with respect to any Restricted Share Award, Restricted Share Unit Award, Performance Award or Other Share-Based Award that is subject to this Section 11 , the Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award to a Covered Employee, and the Committee may not waive the achievement of the applicable performance goals, except in the case of the death or disability of the Participant.
16
11.4 Section 162(m) Administration . To the extent necessary to comply with Section 162(m), with respect to grants of Performance Awards to a Covered Employee, no later than 90 days following the commencement of each performance period (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (1) select the performance goal or goals applicable to the performance period, (2) establish the various targets and bonus amounts which may be earned for such performance period, and (3) specify the relationship between performance goals and targets and the amounts to be earned by each Covered Employee for such performance period. Following the completion of each performance period, the Committee shall certify in writing whether the applicable performance targets have been achieved and the amounts, if any, payable to Covered Employees for such performance period. In determining the amount earned by a Covered Employee for a given performance period, subject to any applicable Award Agreement, the Committee shall have the right to reduce (but not increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant in its sole discretion to the assessment of individual or corporate performance for the performance period.
Section 12. | Termination of Service. |
Subject to the terms and conditions set forth herein, the Committee shall have the full power and authority to determine the terms and conditions that shall apply to any Award upon a Termination of Service with the Company or its Affiliates, including a termination by the Company with or without cause, by a Participant voluntarily, or by reason of death, disability or retirement (each, as may be defined by the Committee from time to time or set forth in an Award Agreement), and may provide such terms and conditions in the Award Agreement or in such rules and regulations as it may prescribe.
Section 13. | Change In Control. |
13.1 Impact on Certain Awards . Unless otherwise provided in an applicable Award Agreement or by the Committee at any time, in the event of a Change in Control of the Company, Options and Stock Appreciation Rights outstanding as of the date of the Change in Control may be cancelled and terminated without payment if the Fair Market Value of one Share as of the date of the Change in Control is less than the per Share Exercise Price of such Award. In the event of a Change in Control, the Committee may provide, in an Award Agreement or otherwise, that all Performance Awards shall be considered to be earned and payable (in full or pro rata based on the target value of the Award and the portion of Performance Period completed as of the date of the Change in Control) and any limitations or other restrictions shall lapse and such Performance Awards shall be immediately settled or distributed or that such Performance Awards shall continue or be cancelled.
13.2 Assumption or Substitution of Certain Awards .
(a) Unless otherwise provided in an Award Agreement or by the Committee at any time, in the event of a Change in Control of the Company in which the successor company assumes or substitutes for an Award (or in which the Company is the ultimate parent corporation and continues the Award), if the surviving or successor corporation terminates a Participants employment or service without cause (as such term is defined in the sole discretion of the Committee, or as set forth in the Award Agreement relating to such Award) within 12 months following such Change in Control: (i) such Participants Options and SARs outstanding as of the date of such termination will immediately vest, become fully exercisable, and may thereafter be exercised for 12 months, (ii) restrictions, limitations and other conditions applicable to such Participants Restricted Shares and Restricted Share Units outstanding as of the date of such termination shall lapse and the Restricted Shares and Restricted Share Units shall become free of all restrictions, limitations and conditions and become fully vested, and (iii) the restrictions, limitations and other conditions applicable to such Participants Other Stock-Based Awards or any other Awards (including the settlement at target level of any Performance Awards) shall lapse, and such Awards shall become free of all restrictions, limitations and conditions and become fully vested and transferable to the full extent of the original grant. For the purposes of this Section 13.2 , an Award shall be considered assumed or substituted for if following the Change in Control the Award confers the right to
17
purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) received in the transaction constituting a Change in Control by holders of Shares for each Share held on the effective date of such transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the transaction constituting a Change in Control is not solely common stock of the successor company, the Committee may, with the consent of the successor company, provide that the consideration to be received upon the exercise or vesting of an Award, for each Share subject thereto, will be solely common stock of the successor company substantially equal in fair market value to the per Share consideration received by holders of Shares in the transaction constituting a Change in Control. The determination of such substantial equality of value of consideration shall be made by the Committee in its discretion and its determination shall be conclusive and binding.
(b) Unless otherwise provided in an Award Agreement or by the Committee at any time, in the event of a Change in Control of the Company to the extent the successor company does not assume or substitute for an Award (or in which the Company is the ultimate parent corporation and does not continue the Award): (i) those Options and SARs outstanding as of the date of the Change in Control that are not assumed or substituted for (or continued) shall immediately vest and become fully exercisable, (ii) restrictions, limitations and other conditions applicable to Restricted Shares and Restricted Share Units that are not assumed or substituted for (or continued) shall lapse and the Restricted Shares and Restricted Share Units shall become free of all restrictions, limitations and conditions and become fully vested, and (iii) the restrictions, other limitations and other conditions applicable to any Other Stock-Based Awards or any other Awards (including the settlement at target level of Performance Awards) that are not assumed or substituted for (or continued) shall lapse, and such Other Stock-Based Awards or such other Awards shall become free of all restrictions, limitations and conditions and become fully vested and transferable to the full extent of the original grant.
(c) The Committee, in its discretion, may determine that, upon the occurrence of a Change in Control of the Company, each Option and SAR outstanding shall terminate within a specified number of days after notice to the Participant, and/or that each Participant shall receive, with respect to each Share subject to such Option or SAR, an amount equal to the excess of the Fair Market Value of such Share immediately prior to the occurrence of such Change in Control over the Option Price or Grant Price of such Option and/or SAR; such amount to be payable in cash, in one or more kinds of stock or property (including the stock or property, if any, payable in the transaction) or in a combination thereof, as the Committee, in its discretion, shall determine. Upon the occurrence of a Change in Control, the Committee, in its sole discretion, may include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of the Company that are not inconsistent with the provisions of the Plan.]
13.3 No Implied Rights; Other Limitations . No Participant shall have any right to prevent the consummation of any Change in Control or any of the acts described in Section 4.2 affecting the number of Shares available to, or other entitlement of, such Participant under the Plan or such Participants Award. Any actions or determinations of the Committee under this Section 13 need not be uniform as to all outstanding Awards, nor treat all Participants identically.
18
Section 14. | Amendment and Termination. |
14.1 Amendments to the Plan . Except as otherwise provided in the Plan, the Board may amend, alter, suspend, discontinue or terminate the Plan or any portion thereof at any time; provided that no such amendment, alteration, suspension, discontinuation or termination shall be made without shareholder approval if such approval is necessary to comply with any tax or regulatory requirement for which or with which the Board deems it necessary or desirable to comply, including the rules and regulations of the principal securities exchange on which Shares are traded.
14.2 Amendments to Awards. Subject to the restrictions and shareholder approval requirements set forth in Section 6.2 and Section 14.1 , the Committee may waive any conditions or rights under, amend any terms of or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary.
14.3 Adjustments of Awards upon the Occurrence of Certain Unusual or Nonrecurring Events. Subject to Section 11.4 , the Committee is hereby authorized to make equitable and proportionate adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (and shall make such adjustments for events described in Section 4.2 hereof) affecting the Company or any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations or accounting principles.
Section 15. | General Provisions. |
15.1 Limited Transferability of Awards . Subject to this Section 15.1 , each Award shall be exercisable only by a Participant during the Participants lifetime, or, if permissible under applicable law, by the Participants legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company and its Affiliates; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(a) Notwithstanding the foregoing, the Committee may, in its sole discretion, permit Awards other than Incentive Stock Options to be transferred by a Participant, without consideration, subject to such rules as the Committee may adopt consistent with any applicable Award Agreement to preserve the purposes of the Plan, to:
(i) | any person who is a family member of the Participant, as such term is used in the instructions to Form S-8 (collectively, the Immediate Family Members ); |
(ii) | a trust solely for the benefit of the Participant and his or her Immediate Family Members; |
(iii) | a partnership or limited liability company whose only partners or shareholders are persons described in (i) or (ii) above; or |
(iv) | any other transferee as may be approved by the Committee in its sole discretion or as provided in the applicable Award agreement; |
(each transferee described in clauses (i), (ii), (iii) and (iv) above is hereinafter referred to as a Permitted Transferee ); provided that the Participant gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Participant in writing that such a transfer is permissible and would comply with the requirements of the Plan and any applicable Award Agreement.
19
(b) The terms of any Award transferred in accordance with the immediately preceding Section shall apply to the Permitted Transferee and any reference in the Plan, or in any applicable Award Agreement, to a Participant shall be deemed to refer to the Permitted Transferee, except that (i) Permitted Transferees shall not be entitled to transfer any Award, other than by will or the laws of descent and distribution; (ii) Permitted Transferees shall not be entitled to exercise any transferred Option unless there shall be in effect a registration statement on an appropriate form covering the Shares to be acquired pursuant to the exercise of such Option if the Committee determines, consistent with any applicable Award Agreement, that such a registration statement is necessary or appropriate, (iii) the Committee or the Company shall not be required to provide any notice to a Permitted Transferee, whether or not such notice is or would otherwise have been required to be given to the Participant under the Plan or otherwise, and (iv) the consequences of a Termination of Service by the Participant under the terms of the Plan and the applicable Award Agreement shall continue to be applied with respect to the Participant, including, without limitation, that an Option shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in the Plan and the applicable Award Agreement.
15.2 Dividend Equivalents. Subject to any limitations set forth in the Plan, in the sole and complete discretion of the Committee, an Award may provide the Participant with dividends or dividend equivalents, payable in cash, Shares, other securities or other property on a current or deferred basis. All dividend or dividend equivalents which are not paid currently may, at the Committees discretion, accrue interest, be reinvested into additional Shares, or, in the case of dividends or dividend equivalents credited in connection with Performance Awards, be credited as additional Performance Awards and paid to the Participant if and when, and to the extent that, payment is made pursuant to such Award.
15.3 No Rights to Awards. No Person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards need not be the same with respect to each Participant.
15.4 Share Certificates. All certificates for Shares or other securities of the Company or any Affiliate (or, if any such Shares or securities are in book-entry form, such book-entry balances and confirmation and account statements with respect thereto) delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of any regulatory authority, any stock exchange or other market upon which such Shares or other securities are then listed, and any applicable Federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates (or confirmation and account statements for book-entry Shares) to make appropriate reference to such restrictions.
15.5 Tax Withholding . A Participant may be required to pay to the Company or any Affiliate and the Company or any Affiliate shall have the right and is hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan, or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities, other Awards or other property) of any applicable withholding or other tax-related obligations in respect of an Award, its exercise or any other transaction involving an Award, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. Without limiting the generality of the foregoing, the Committee may in its discretion permit a Participant to satisfy or arrange to satisfy, in whole or in part, the tax obligations incident to an Award by: (a) electing to have the Company withhold Shares or other property otherwise deliverable to such Participant pursuant to his or her Award (provided, however, that the amount of any Shares so withheld shall not exceed the amount necessary to satisfy required federal, state local and foreign withholding obligations using the minimum statutory withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that are applicable to
20
supplemental taxable income) and/or (b) tendering to the Company Shares owned by such Participant (or by such Participant and his or her spouse jointly) and purchased or held for the requisite period of time as may be required to avoid the Companys or the Affiliates incurring an adverse accounting charge, based, in each case, on the Fair Market Value of the Shares on the payment date as determined by the Committee. All such elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
15.6 Forfeiture and Clawback Provisions . Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Committee shall have the right to provide, in an Award Agreement, or to require a Participant to agree by separate written or electronic instrument, that all Awards (including any proceeds, gains or other economic benefit actually or constructively received by the Participant upon any receipt or exercise of any Award or upon the receipt or resale of any Shares underlying the Award) of such Participant shall be subject to the provisions of any claw-back policy implemented by the Company at any time, including, without limitation, any claw-back policy adopted to comply with the requirements of applicable law, including without limitation the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder, to the extent set forth in such claw-back policy and/or in the applicable Award Agreement.
15.7 Award Agreements. Each Award hereunder shall be evidenced by an Award Agreement that shall be delivered to the Participant and may specify the terms and conditions of the Award and any rules applicable thereto. In the event of a conflict between the terms of the Plan and any Award Agreement, the terms of the Plan shall prevail. The Committee shall, subject to applicable law, determine the date an Award is deemed to be granted. The Committee or, except to the extent prohibited under applicable law, its delegate(s) may establish the terms of agreements or other documents evidencing Awards under this Plan and may, but need not, require as a condition to any such agreements or documents effectiveness that such agreement or document be executed by the Participant, including by electronic signature or other electronic indication of acceptance, and that such Participant agree to such further terms and conditions as specified in such agreement or document. The grant of an Award under this Plan shall not confer any rights upon the Participant holding such Award other than such terms, and subject to such conditions, as are specified in this Plan as being applicable to such type of Award (or to all Awards) or as are expressly set forth in the agreement or other document evidencing such Award.
15.8 No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of Options, Restricted Shares, Restricted Share Units, Other Stock-Based Awards or other types of Awards provided for hereunder.
15.9 No Right to Employment; Claims to Awards. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ or service of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment or service, free from any liability or any claim under the Plan, unless otherwise expressly provided in an Award Agreement. No Employee, Director or Consultant shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Employees, Directors or Consultants under the Plan.
15.10 No Rights as Shareholder. Subject to the provisions of the Plan and the applicable Award Agreement, no Participant or holder or beneficiary of any Award shall have any rights as a shareholder with respect to any Shares to be distributed under the Plan until such person has become a holder of such Shares. Notwithstanding the foregoing, in connection with each grant of Restricted Shares hereunder, the applicable Award Agreement shall specify if and to what extent the Participant shall not be entitled to the rights of a shareholder in respect of such Restricted Shares.
21
15.11 Compliance with Section 409A of the Code. Notwithstanding any other provisions of the Plan or any Award Agreements thereunder, it is intended that the provisions of the Plan and such Award Agreements comply with Section 409A of the Code, and that no Award shall be granted, deferred, accelerated, extended, paid out or modified under this Plan, or any Award Agreement interpreted, in a manner that would result in the imposition of an additional tax under Section 409A of the Code upon a Participant. Any provision of this Plan that would cause the grant of an Award or the payment, settlement or deferral thereof to fail to satisfy Section 409A of the Code shall be amended to comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under Section 409A of the Code. In the event that it is reasonably determined by the Board or Committee that, as a result of Section 409A of the Code, payments in respect of any Award under the Plan may not be made at the time contemplated by the terms of the Plan or the relevant Award agreement, as the case may be, without causing the Participant holding such Award to be subject to taxation under Section 409A of the Code, the Company will make such payment on the first day that would not result in the Participant incurring any tax liability under Section 409A of the Code; which, if the Participant is a specified employee within the meaning of Section 409A, shall be the first day following the six-month period beginning on the date of Participants Termination of Service. Unless otherwise provided in an Award Agreement or other document governing the issuance of such Award, payment of any Performance Award intended to qualify as a short term deferral within the meaning of Section 1.409A-1(b)(4)(i) of the U.S. Treasury Regulations shall be made between the first day following the close of the applicable Performance Period and the last day of the applicable 2 1 ⁄ 2 month period as defined therein. Although the Company intends to administer the Plan so that Awards will be exempt from, or will comply with, the requirements of Section 409A of the Code, the Company does not warrant that any Award under the Plan will qualify for favorable tax treatment under Section 409A of the Code or any other provision of federal, state, local or foreign law. The Company shall not be liable to any Participant for any tax, interest, or penalties that Participant might owe as a result of the grant, holding, vesting, exercise, or payment of any Award under the Plan.
15.12 Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of Tennessee without giving effect to conflicts of laws principles.
15.13 Severability. If any provision of the Plan or any Award is, or becomes, or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
15.14 Other Laws. The Committee may refuse to issue or transfer any Shares or other consideration under an Award if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or such other consideration might violate any applicable law or regulation (including applicable non-U.S. laws or regulations) or entitle the Company to recover the same under Exchange Act Section 16(b), and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Award shall be promptly refunded to the relevant Participant, holder or beneficiary.
15.15 No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
22
15.16 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.
15.17 Headings. Headings are given to the sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
Section 16. | Term Of The Plan. |
16.1 Effective Date . The Plan shall be effective as of the date adopted by the Board (the Effective Date ), provided that no Incentive Stock Options shall be granted hereunder unless the Plan is approved by the Companys shareholders prior to such grant or within twelve months following any such grant.
16.2 Expiration Date. No new Awards shall be granted under the Plan after the tenth anniversary of the Effective Date. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue or terminate any such Award or to waive any conditions or rights under any such Award shall, continue after the tenth anniversary of the Effective Date.
Date Adopted by the Board: , 2015
23
Exhibit 10.10
J. ALEXANDERS HOLDINGS, INC.
2015 EQUITY INCENTIVE PLAN
STOCK OPTION GRANT NOTICE
J. Alexanders Holdings, Inc., a Tennessee corporation, (the Company ), pursuant to its 2015 Equity Incentive Plan, as amended from time to time (the Plan ), hereby grants to the holder listed below ( Participant ), an option to purchase the number of shares of Common Stock ( Stock ) set forth below (the Option ). The Option is subject to the terms and conditions set forth in this Stock Option Grant Notice (the Grant Notice ) and the Stock Option Agreement attached hereto as Exhibit A (the Agreement ) and the Plan, which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in the Grant Notice and the Agreement.
Participant: | ||
Grant Date: | ||
Exercise Price per Share: | $ | |
Total Number of Shares Subject to the Option: | shares | |
Expiration Date: | ||
Vesting Schedule: | ||
Type of Option: | Non-Qualified Stock Option |
By his or her signature and the Companys signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Agreement and the Grant Notice. Participant has reviewed the Agreement, the Plan and the Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Grant Notice and fully understands all provisions of the Grant Notice, the Agreement and the Plan. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan, the Grant Notice or the Agreement.
J. ALEXANDERS HOLDINGS, INC. | PARTICIPANT | |||||||
By: |
|
By: |
|
|||||
Name: |
|
Name: |
|
|||||
Title: |
|
|||||||
Address: |
EXHIBIT A
STOCK OPTION AGREEMENT
Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Participant an Option under the Plan to purchase the number of shares of Stock set forth in the Grant Notice.
ARTICLE I
GENERAL
1.1 Defined Terms . Capitalized terms not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice.
1.2 Incorporation of Terms of Plan . The Option is subject to the terms and conditions set forth in this Agreement and in the Grant Notice and the Plan, which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.
ARTICLE II
GRANT OF OPTION
2.1 Grant of Option . In consideration of Participants past and/or continued employment with or service to the Company or a Subsidiary and for other good and valuable consideration, effective as of the grant date set forth in the Grant Notice (the Grant Date ), the Company has granted to Participant the Option to purchase any part or all of an aggregate of the number of shares of Stock set forth in the Grant Notice, upon the terms and conditions set forth in the Grant Notice, the Plan and this Agreement, subject to adjustments as provided in Section 4.2 of the Plan.
2.2 Exercise Price . The exercise price per share of the shares of Stock subject to the Option (the Exercise Price ) shall be as set forth in the Grant Notice.
2.3 Consideration to the Company . In consideration of the grant of the Option by the Company, Participant agrees to render faithful and efficient services to the Company or any Subsidiary. Nothing in the Plan, the Grant Notice or this Agreement shall confer upon Participant any right to continue in the employ or service of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.
ARTICLE III
PERIOD OF EXERCISABILITY
3.1 Commencement of Exercisability . Subject to Sections 3.2 , and 3.3 hereof, the Option shall become vested and exercisable in such amounts and at such times as are set forth in the Grant Notice.
3.2 Duration of Exercisability . The Option shall remain vested and exercisable until it becomes unexercisable under Section 3.3 hereof.
3.3 Expiration of Option . The Option may not be exercised to any extent by anyone after the first to occur of the following events:
(a) The expiration date set forth in the Grant Notice;
(b) Except as the Committee may otherwise approve, in the event of Participants Termination of Service other than for Cause (as defined below) or by reason of Participants death or disability, the expiration of three (3) months from the date of Participants Termination of Service;
(c) Except as the Committee may otherwise approve, the expiration of one (1) year from the date of Participants Termination of Service by reason of Participants death or disability; or
(d) Except as the Committee may otherwise approve, upon Participants Termination of Service for Cause.
In the case of (a) or (b) above, the period of time over which this Option may be exercised shall be automatically extended if on the scheduled expiration of the Option, the Participants exercise of such Option would violate applicable securities law; provided, however, that during the extended exercise period the Option may only be exercised to the extent the Option was exercisable in accordance with its terms immediately prior to such scheduled expiration date; and provided further, that such extended exercise period shall end not later than thirty (30) days after the exercise of such Option first would no longer violate such laws.
As used in this Agreement, Cause shall mean (a) the Boards determination that Participant failed to substantially perform his or her duties (other than any such failure resulting from Participants disability); (b) the Boards determination that Participant failed to carry out, or comply with, any lawful and reasonable directive of the Board or Participants immediate supervisor; (c) Participants conviction, plea of no contest, plea of nolo contendere , or imposition of unadjudicated probation for any felony, indictable offense or crime involving moral turpitude; (d) Participants unlawful use (including being under the influence) or possession of illegal drugs on the Companys (or any Subsidiarys) premises or while performing Participants duties and responsibilities; or (e) Participants commission of an act of fraud, embezzlement, misappropriation, misconduct, or breach of fiduciary duty against the Company or any Subsidiary. Notwithstanding the foregoing, if Participant is a party to a written employment or consulting agreement with the Company (or any Subsidiary), then Cause shall be as such term is defined in the applicable written employment or consulting agreement.
3.4 Tax Withholding . Notwithstanding any other provision of this Agreement:
(a) The Company and its Subsidiaries have the authority to deduct or withhold, or require Participant to remit to the Company or the applicable Subsidiary, an amount sufficient to satisfy applicable federal, state, local and foreign taxes (including the employee portion of any FICA obligation) required by law to be withheld with respect to any taxable event arising pursuant to this Agreement. The Company and its Subsidiaries may withhold or Participant may make such payment in one or more of the forms specified below:
(i) by cash or check made payable to the Company or the Subsidiary with respect to which the withholding obligation arises;
(ii) by the deduction of such amount from other cash compensation payable to Participant;
(iii) with the consent of the Committee, by requesting that the Company withhold a net number of shares of Stock issuable upon the exercise of the Option having a then current Fair Market Value not exceeding the amount necessary to satisfy the withholding obligation of the Company and its Subsidiaries based on the minimum applicable statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes;
(iv) with the consent of the Committee, by tendering to the Company shares of Stock having a then current Fair Market Value not exceeding the amount
2
necessary to satisfy the withholding obligation of the Company and its Subsidiaries due upon the exercise of the Option based on the minimum applicable statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes;
(v) with the consent of the Committee, through the delivery of a notice that Participant has placed a market sell order with a broker designated by the Company with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company or the Subsidiary with respect to which the withholding obligation arises in satisfaction of such withholding taxes; provided that payment of such proceeds is then made to the Company or the applicable Subsidiary at such time as may be required by the Committee, but in any event not later than the settlement of such sale; or
(vi) in any combination of the foregoing.
(b) With respect to any withholding taxes arising in connection with the Option, in the event Participant fails to provide timely payment of all sums required pursuant to Section 3.4(a) , the Company shall have the right and option, but not the obligation, to treat such failure as an election by Participant to satisfy all or any portion of Participants required payment obligation pursuant to Section 3.4(a)(ii) or Section 3.4(a)(iii) above, or any combination of the foregoing as the Company may determine to be appropriate. The Company shall not be obligated to deliver any certificate representing shares of Stock issuable with respect to the exercise of the Option to Participant or his or her legal representative unless and until Participant or his or her legal representative shall have paid or otherwise satisfied in full the amount of all federal, state, local and foreign taxes applicable with respect to the taxable income of Participant resulting from the exercise of the Option or any other taxable event related to the Option.
(c) In the event any tax withholding obligation arising in connection with the Option will be satisfied under Section 3.4(a)(iii) above, then the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on Participants behalf a whole number of shares from those shares of Stock that are issuable upon exercise of the Option as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the tax withholding obligation and to remit the proceeds of such sale to the Company or the Subsidiary with respect to which the withholding obligation arises. Participants acceptance of this Award constitutes Participants instruction and authorization to the Company and such brokerage firm to complete the transactions described in this Section 3.4(c) , including the transactions described in the previous sentence, as applicable. The Company may refuse to issue any shares of Stock to Participant until the foregoing tax withholding obligations are satisfied.
(d) Participant is ultimately liable and responsible for all taxes owed in connection with the Option, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the Option. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or exercise of the Option or the subsequent sale of Stock. The Company and the Subsidiaries do not commit and are under no obligation to structure the Option to reduce or eliminate Participants tax liability.
ARTICLE IV
EXERCISE OF OPTION
4.1 Person Eligible to Exercise . Unless otherwise provided by the Committee in its sole discretion, during the lifetime of Participant, only Participant may exercise the Option or any portion thereof. After the death of Participant, the Option may, prior to the time when the Option becomes unexercisable under Section 3.3 hereof, be exercised by Participants personal representative or by any person empowered to do so under the deceased Participants will or under the then applicable laws of descent and distribution.
3
4.2 Partial Exercise . Subject to Section 5.2 , the Option may be exercised in whole or in part at any time prior to the time when the Option or applicable portion thereof becomes unexercisable under Section 3.3 hereof.
4.3 Manner of Exercise . The Option may be exercised solely by delivery to the Secretary of the Company (or any third party administrator or other person or entity designated by the Company), during regular business hours, of all of the following prior to the time when the Option or such portion thereof becomes unexercisable under Section 3.3 hereof:
(a) An exercise notice in a form specified by the Committee, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Committee;
(b) The receipt by the Company of full payment for the shares of Stock with respect to which the Option or portion thereof is exercised, in such form of consideration permitted under Section 4.4 hereof that is acceptable to the Committee;
(c) The payment of any applicable withholding tax in accordance with Section 3.4 ;
(d) Any other written representations or documents as may be required in the Committees sole discretion to effect compliance with applicable law; and
(e) In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 hereof by any person or persons other than Participant, appropriate proof of the right of such person or persons to exercise the Option. Notwithstanding any of the foregoing, the Committee shall have the right to specify all conditions of the manner of exercise, which conditions may vary by Participant and which may be subject to change from time to time.
4.4 Method of Payment . Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of Participant:
(a) Cash or check;
(b) With the consent of the Committee, surrender of shares of Stock (including, without limitation, shares of Stock otherwise issuable upon exercise of the Option) held for such period of time as may be required by the Committee in order to avoid adverse accounting consequences and having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof;
(c) With the consent of the Committee and subject to Section 5.18 , through the delivery of a notice that Participant has placed a market sell order with a broker designated by the Company with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company at such time as may be required by the Committee, but in any event not later than the settlement of such sale; or
(d) Any other form of legal consideration acceptable to the Committee.
4.5 Conditions to Issuance of Stock . The Company shall not be required to issue or deliver any shares of Stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions: (A) the admission of such shares of Stock to listing on all stock exchanges on
4
which such Stock is then listed, (B) the completion of any registration or other qualification of such shares of Stock under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or other governmental regulatory body, that the Committee shall, in its absolute discretion, deem necessary or advisable, (C) the obtaining of any approval or other clearance from any state or federal governmental agency that the Committee shall, in its absolute discretion, determine to be necessary or advisable, (D) the receipt by the Company of full payment for such shares of Stock, which may be in one or more of the forms of consideration permitted under Section 4.4 hereof, and (E) the receipt of full payment of any applicable withholding tax in accordance with Section 3.4 by the Company or its Subsidiary with respect to which the applicable withholding obligation arises.
4.6 Rights as Stockholder . Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any shares of Stock purchasable upon the exercise of any part of the Option unless and until certificates representing such shares of Stock (which may be in book-entry form) will have been issued and recorded on the records of the Company or its transfer agents or registrars and delivered to Participant (including through electronic delivery to a brokerage account). No adjustment will be made for a dividend or other right for which the record date is prior to the date of such issuance, recordation and delivery, except as provided in Section 4.2 of the Plan. Except as otherwise provided herein, after such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to such shares of Stock, including, without limitation, the right to receive dividends and distributions on such shares.
ARTICLE V
OTHER PROVISIONS
5.1 Administration . The Committee shall have the power to interpret the Plan, the Grant Notice and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan, the Grant Notice and this Agreement as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee will be final and binding upon Participant, the Company and all other interested persons. To the extent allowable pursuant to applicable law, no member of the Committee or the Board will be personally liable for any action, determination or interpretation made with respect to the Plan, the Grant Notice or this Agreement.
5.2 Whole Shares . The Option may only be exercised for whole shares of Stock.
5.3 Option Not Transferable . Subject to Section 4.1 hereof, the Option may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the shares of Stock underlying the Option have been issued, and all restrictions applicable to such shares of Stock have lapsed. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
5.4 Adjustments . Upon the occurrence of certain events relating to the Stock contemplated by Section 4.2 of the Plan (including, without limitation, an extraordinary cash dividend on such Stock), the Committee shall make such adjustments as the Committee deems appropriate in the number of shares of Stock subject to the Option, the exercise price of the Option and the kind of securities that may be issued upon exercise of the Option. Participant acknowledges that the Option is subject to adjustment, modification and termination in certain events as provided in this Agreement and Section 4.2 of the Plan.
5.5 Notices . Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Companys principal office,
5
and any notice to be given to Participant shall be addressed to Participant at Participants last address reflected on the Companys records. By a notice given pursuant to this Section 5.5 , either party may hereafter designate a different address for notices to be given to that party. Any notice that is required to be given to Participant shall, if Participant is then deceased, be given to the person entitled to exercise the Option pursuant to Section 4.1 hereof by written notice under this Section 5.5 . Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.
5.6 Titles . Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
5.7 Governing Law . The laws of the State of Tennessee shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.
5.8 Conformity to Securities Laws . Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all applicable laws, including, without limitation, the provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to applicable law. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to applicable law.
5.9 Amendment, Suspension and Termination . To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Committee or the Board, provided that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the Option in any material way without the prior written consent of Participant.
5.10 Successors and Assigns . The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in Section 5.3 and the Plan, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
5.11 Limitations Applicable to Section 16 Persons . Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Option, the Grant Notice and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
5.12 Not a Contract of Employment . Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue to serve as an employee or other service provider of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.
5.13 Entire Agreement . The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
6
5.14 Section 409A . This Award is not intended to constitute nonqualified deferred compensation within the meaning of Section 409A of the Code (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof, Section 409A ). However, notwithstanding any other provision of the Plan, the Grant Notice or this Agreement, if at any time the Committee determines that this Award (or any portion thereof) may be subject to Section 409A , the Committee shall have the right in its sole discretion (without any obligation to do so or to indemnify Participant or any other person for failure to do so) to adopt such amendments to the Plan, the Grant Notice or this Agreement, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Committee determines are necessary or appropriate for this Award either to be exempt from the application of Section 409A or to comply with the requirements of Section 409A . Nothing in the Plan or this Agreement shall be construed to make the Company liable to Participant for any tax, interest, or penalties that Participant might owe as a result of the grant, holding, vesting, exercise, or payment of this Option or any Stock related thereto.
5.15 Agreement Severable . In the event that any provision of the Grant Notice or this Agreement is held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.
5.16 Limitation on Participants Rights . Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant shall have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the Option, and rights no greater than the right to receive the Stock as a general unsecured creditor with respect to options, as and when exercised pursuant to the terms hereof.
5.17 Counterparts . The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to applicable law, each of which shall be deemed an original and all of which together shall constitute one instrument.
5.18 Broker-Assisted Sales . In the event of any broker-assisted sale of shares of Stock in connection with the payment of withholding taxes as provided in Section 3.4(a)(v) or Section 3.4(c) or the payment of the exercise price as provided in Section 4.4(c) : (A) any shares of Stock to be sold through a broker-assisted sale will be sold on the day the tax withholding obligation or exercise of the Option, as applicable, occurs or arises, or as soon thereafter as practicable; (B) such shares of Stock may be sold as part of a block trade with other participants in the Plan in which all participants receive an average price; (C) Participant will be responsible for all brokers fees and other costs of sale, and Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (D) to the extent the proceeds of such sale exceed the applicable tax withholding obligation or exercise price, the Company agrees to pay such excess in cash to Participant as soon as reasonably practicable; (E) Participant acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy the applicable tax withholding obligation or exercise price; and (F) in the event the proceeds of such sale are insufficient to satisfy the applicable tax withholding obligation, Participant agrees to pay immediately upon demand to the Company or its Subsidiary with respect to which the withholding obligation arises, an amount sufficient to satisfy any remaining portion of the Companys or the applicable Subsidiarys withholding obligation.
7
Exhibit 10.11
J. ALEXANDERS CORPORATION
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
ARTICLE 1 NAME AND PURPOSE |
2 | |||
1.1 Name |
2 | |||
1.2 Purpose |
2 | |||
1.3 Plan for a Select Group |
2 | |||
1.4 Not a Funded Plan |
2 | |||
1.5 Section 409A |
2 | |||
ARTICLE 2 DEFINITIONS |
3 | |||
ARTICLE 3 ELIGIBILITY AND PARTICIPATION |
11 | |||
3.1 Eligibility |
11 | |||
3.2 Participation |
11 | |||
3.3 Termination of Participation |
11 | |||
ARTICLE 4 ELECTIONS AND CONTRIBUTIONS |
12 | |||
4.1 Deferral Agreement |
12 | |||
4.2 Types of Deferral Elections |
13 | |||
4.3 Election Irrevocable |
13 | |||
4.4 Timing of Deferral Elections |
13 | |||
4.5 Matching Amounts |
15 | |||
4.6 Election of Form of Payment |
17 | |||
4.7 Change in Election of Form of Payment |
17 | |||
ARTICLE 5 VESTING |
18 | |||
5.1 Vesting of Participant Deferral Amounts |
18 | |||
ARTICLE 6 ACCOUNTS AND CREDITS |
19 | |||
6.1 Establishment of Deferral Account |
19 | |||
6.2 Crediting of Deferral Amounts |
19 | |||
6.3 Adjustment of Deferral Account |
19 | |||
6.4 Measurement Funds |
20 | |||
6.5 Forfeiture |
20 | |||
ARTICLE 7 BENEFIT DISTRIBUTIONS |
21 | |||
7.1 Normal Form of Benefits |
21 | |||
7.2 Amount of Benefits |
21 | |||
7.3 Benefit Payment Events |
21 | |||
7.4 Time of Payment |
21 | |||
7.5 Unforeseeable Emergency |
22 | |||
7.6 Required Delay in Payment to Key Employees |
22 | |||
7.7 Permissible Delays in Payment |
23 | |||
7.8 Permitted Acceleration of Payment |
23 | |||
ARTICLE 8 BENEFICIARIES |
25 | |||
8.1 Automatic Beneficiary |
25 | |||
8.2 Designated Beneficiary or Beneficiaries |
25 | |||
8.3 Death |
25 | |||
ARTICLE 9 RIGHTS OF PARTICIPANTS AND BENEFICIARIES |
26 | |||
9.1 Creditor Status of Participant and Beneficiary |
26 | |||
9.2 Rights with Respect to a Trust |
26 | |||
9.3 Investments |
26 |
i
ARTICLE 10 TRUST |
27 | |||
10.1 Possible Establishment of Trust |
27 | |||
10.2 Grantor Trust |
27 | |||
10.3 Obligations of the Company |
27 | |||
10.4 Trust Terms |
27 | |||
10.5 Investment of Trust Funds |
27 | |||
ARTICLE 11 ADMINISTRATION |
28 | |||
11.1 Appointment of Administrator |
28 | |||
11.2 Powers and Duties of the Administrator |
28 | |||
11.3 Engagement of Advisors |
28 | |||
11.4 Payment of Costs and Expenses |
28 | |||
ARTICLE 12 CLAIMS PROCEDURE |
30 | |||
12.1 Claim for Benefits |
30 | |||
12.2 Denial of a Claim |
30 | |||
12.3 Request for Review of a Denial of a Claim for Benefits |
30 | |||
12.4 Appeals Procedure |
31 | |||
12.5 Decision upon Review of Denial of Claim for Benefits |
31 | |||
12.6 Establishment of Appeals Committee |
32 | |||
ARTICLE 13 AMENDMENT AND TERMINATION |
33 | |||
13.1 Power to Amend |
33 | |||
13.2 Power to Terminate |
33 | |||
13.3 No Liability for Plan Amendment or Termination |
34 | |||
ARTICLE 14 MISCELLANEOUS |
35 | |||
14.1 Non-Alienation |
35 | |||
14.2 Tax Withholding |
35 | |||
14.3 Incapacity |
35 | |||
14.4 Administrative Forms |
35 | |||
14.5 Independence of Plan |
35 | |||
14.6 No Employment Rights Created |
35 | |||
14.7 Responsibility for Legal Effect |
36 | |||
14.8 Companys Liability |
36 | |||
14.9 Limitation of Duties |
36 | |||
14.10 Limitation of Companys Liability |
36 | |||
14.11 Successors |
36 | |||
14.12 Controlling Law |
36 | |||
14.13 Notice |
36 | |||
14.14 Headings and Titles |
36 | |||
14.15 General Rules of Construction |
36 | |||
14.16 Severability |
37 | |||
14.17 Indemnification |
37 |
ii
J. ALEXANDERS CORPORATION
DEFERRED COMPENSATION PLAN
The J. Alexanders Corporation Deferred Compensation Plan (the Plan) is hereby adopted by J. Alexanders Corporation, a corporation organized and existing under and by virtue of the laws of the State of Tennessee (the Company);
W I T N E S S E T H:
WHEREAS, the Company, in order to retain and reward a select group of management and/or highly compensated employees (hereinafter referred to as Eligible Employee(s)), desires to provide Eligible Employees with the opportunity to obtain additional retirement benefits through the Plan;
1
NOW, THEREFORE, the Company hereby adopts the Plan, effective June 23, 2008, as follows:
ARTICLE 1
NAME AND PURPOSE
1.1 | Name . The name of the Plan shall be the J. Alexanders Corporation Deferred Compensation Plan. |
1.2 | Purpose . The purpose of the Plan is to retain and reward certain management and highly compensated employees of the Company who have contributed to the Companys success and are expected to continue to contribute to such success in the future. |
1.3 | Plan for a Select Group . The Plan shall cover certain Employees of the Company who are members of a select group of management or highly compensated employees within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Company shall have the authority to take any and all actions necessary or desirable in order for the Plan to satisfy the requirements set forth in ERISA and the regulations thereunder applicable to plans maintained for Employees who are members of a select group of management or highly compensated employees. |
1.4 | Not a Funded Plan . It is the intention and purpose of the Company that the Plan shall be deemed to be unfunded for tax purposes and deemed a plan as would properly be described as unfunded for purposes of Title I of ERISA. The Plan shall be administered in such a manner, notwithstanding any contrary provision of the Plan, in order that it will be so deemed and would be so described. |
1.5 | Section 409A . The Plan is intended to conform with the requirements of Section 409A of the Code and the final regulations issued thereunder and shall be implemented and administered in a manner consistent therewith. |
2
ARTICLE 2
DEFINITIONS
Unless the context otherwise indicates, the following words used herein shall have the following meanings wherever used in this instrument:
2.1 | Administrator . The word Administrator shall mean the committee composed of the Chief Financial Officer, the Vice President/Controller and the Vice President of Human Resources of the Company and any other person(s) designated by the Chief Executive Officer (the CEO) from time to time, in his sole discretion, or such other person(s) or entity appointed by the Board pursuant to Article 11. |
2.2 | Affiliated Company . Any corporation which is a member of a controlled group of corporations of which the Company is a member, or any unincorporated trade or business which is under the common control of or with the Company, or any affiliated service group of which the Company is a member, which are required to be aggregated with the Company under section 414(b) or 414(c) of the Code, without substitution of a lower percentage for 80% in applying section 1563(a)(1), (2) and (3) of the Code as permitted in section 1.409A-1(h)(3) of the Regulations. |
2.3 | Alternate Payee . The words Alternate Payee shall mean any spouse, former spouse, child or other dependent of a Participant who is recognized by a Domestic Relations Order as having a right to receive all, or a portion of , the benefits payable under this Plan to that Participant. |
2.4 | Appeals Committee . The words Appeals Committee shall mean the Compensation Committee or such other committee established by the Board pursuant to Article 12. |
2.5 | Base Salary . The words Base Salary shall mean a Participants base remuneration for services rendered to the Company as an Employee and while a Participant. A Participants Base Salary will not be reduced by amounts which the Participant has elected to defer pursuant to Article 4 of this Plan or by the amount of the Participants elective deferrals or salary reduction in the 401(k) Plan or any cafeteria plan (i.e., amounts excluded from taxable income under sections 125, 402(e)(3) and 402(h) of the Code). Furthermore, Base Salary shall not include any bonus amounts, reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation, welfare benefits or matching or employer contributions under any employee benefit plan of the Company. |
2.6 | Beneficiary . The word Beneficiary shall mean the person, trust, estate or other entity who or which is designated pursuant to Article 8 to receive Benefit Payments upon the death of a Participant. |
2.7 | Benefit Payment . The words Benefit Payment shall mean payment of the benefit as set forth in Article 7, Section 8.3 or Section 13.2. |
2.8 | Benefit Payment Commencement Date . The words Benefit Payment Commencement Date shall mean the earliest date on which a Benefit Payment for a particular Benefit Payment Event may be distributed (or commence to be distributed, if payable in installments) under the terms of this Plan. In general, the Benefit Payment Commencement Date shall be the date that the Benefit Payment Event occurs. |
3
2.9 | Benefit Payment Event . The words Benefit Payment Event shall mean the occurrence of an event entitling a Participant to receive a payment of his or her benefits and which event is identified as a Benefit Payment Event under the terms of this Plan. The Plan may provide for payments on account of events which are not included in the Term Benefit Payment Event (e.g., Unforeseeable Emergency, Plan termination (including termination following a Change in Control) and as otherwise allowed by the Regulations under Section 409A). |
2.10 | Board . The word Board shall mean the Board of Directors of the Company. |
Bonus . The word Bonus shall mean a Participants cash bonus and incentive payments for services rendered to the Company as an Employee and while a Participant. A Participants Bonus will not be reduced by amounts which the Participant has elected to defer pursuant to Article 4 of this Plan or by the amount of the Participants elective deferrals or salary reduction in the 401(k) Plan or any cafeteria plan (i.e., amounts excluded from taxable income under sections 125, 402(e)(3) and 402(h) of the Code).
2.11 | Change in Control . A Change in Control shall be deemed to have occurred upon the first to occur of any of the following events: |
(a) | Any one person or group (as described in Regulations promulgated under Section 409A) acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; or |
(b) | Notwithstanding that the Company has not undergone a Change in Control as described in 2.11(a), a Change in Control of the Company occurs on the date that either: |
(i) | Any one person or more than one person acting as a group (as described in Regulations promulgated under Section 409A), acquires or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons ownership of stock of the Company possessing thirty percent (30%) or more of the total voting power of the stock of such corporation; or |
(ii) | A majority of members of the Companys Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Companys Board prior to the date of the appointment or election; or |
(c) | Any one person or group (as described in Regulations promulgated under Section 409A) acquires or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons assets from the Company that have a total gross fair market value equal to or more than forty percent (40%) of all the assets of the Company immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. |
4
In determining whether a Change in Control has occurred, the following rules shall be applicable:
(I) | For purposes of a change in ownership described in clause (a) above, if any one person or more than one person acting as a proxy is considered to own more than fifty percent (50%) of the total fair market value or total voting power of the stock of a corporation, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the corporation (or to cause a change in the effective control of the corporation as described in clause (b)). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the corporation acquires its stock in exchange for property will be treated as an acquisition of stock. Section 2.11(a) applies only when there is a transfer of stock of a corporation (or issuance of stock of a corporation) and stock in such corporation remains outstanding after the transaction. For purposes of Section 2.11(a), persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time or as a result of a public offering. Persons will, however, be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the corporation. If a person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders only with respect to the ownership in that corporation prior to the transaction giving rise to the change and not with respect to the ownership interest in the other corporation. |
(II) | For purposes of a change in effective control of a corporation described in clause (b) above, if one person, or more than one person acting as a group, is considered to effectively control a corporation within the meaning of clause (b), the acquisition of additional control of the corporation by the same person or persons is not considered to cause a change in the effective control of the corporation within the meaning of clause (b) or to cause a change in the ownership of the corporation within the meaning of clause (a). Persons will or will not be considered to be acting as a group in accordance with rules similar to those set forth in clause (I) and as specifically provided in section 1.409A-3(i)(5)(vi)(D) of the Regulations under Section 409A. |
(III) |
For purposes of a change in the ownership of a substantial portion of a corporations assets described in clause (c) above, there is not a Change in Control event when there is a transfer to an entity that is controlled by the shareholders of the transferring corporation immediately after the transfer. A transfer of assets by a corporation is not treated as a change in ownership of such assets if the assets are transferred to (i) a shareholder of the corporation (immediately before the asset transfer) in exchange for or with respect to its stock, |
5
(ii) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the corporation, (iii) a person, or more than one person acting as a group, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the corporation, or (iv) an entity, at least fifty (50%) of the total value or voting power of which is owned, directly or indirectly, by a person described in immediately preceding clause (iii). For purposes of the foregoing, and except as otherwise provided, a persons status is determined immediately after the transfer of assets. Persons will or will not be considered to be acting as a group in accordance with rules similar to those set forth in clause (I), and as specifically provided in section 1.409A-3(i)(5)(vii)(C) of the Regulations under Section 409A. |
(IV) | Code Section 318(a) applies for purposes of determining stock ownership. Stock underlying a vested option is considered owned by the individual who owns the vested option (and the stock underlying an unvested option is not considered owned by the individual who holds the unvested option). If, however, a vested option is exercisable for stock that is not substantially vested (as defined by Regulation section 1.83-3(b) and (j)) the stock underlying the option is not treated as owned by the individual who holds the option. |
(V) | Whether a Change in Control has occurred will be determined by the Company in accordance with the rules and definitions set forth in this Section 2.11. This determination shall be made in a manner consistent with section 409A of the Code and the Regulations thereunder. |
2.12 | Code . The word Code shall mean the Internal Revenue Code of 1986, as amended. Whenever a reference is made herein to a specific Code section, such reference shall be deemed to include any successor Code section having the same or a substantially similar purpose. |
2.13 | Company . The word Company shall mean J. Alexanders Corporation and any successor corporation or business organization which shall assume the duties and obligations of J. Alexanders Corporation, under the Plan. |
2.14 | Compensation . The word Compensation shall have the same meaning as Compensation under the terms of the 401(k) Plan, subject to the maximum dollar limitation prescribed by section 401(a)(17) of the Code ($230,000 in 2008). |
2.15 | Compensation Committee . The words Compensation Committee shall mean the Compensation Committee of the Board. |
2.16 | Deferral Agreement . The words Deferral Agreement shall mean the agreement containing the election by an Eligible Employee to defer his Compensation pursuant to Section 4.1. |
2.17 | Deferral Account . The words Deferral Account shall mean a bookkeeping account maintained by the Administrator on behalf of each Participant to which credits and debits are made as provided in Article 6. |
6
2.18 | Deferral Amount . The words Deferral Amount shall mean for each Participant an amount equal to the amount by which the Participants Base Salary and/or Bonus are reduced by means of a deferral election pursuant to Section 4.1 herein. |
2.19 | Director . The word Director shall mean a member of the Board of Directors of the Company. |
2.20 | Disability . The word Disability shall have the following meaning: A Participant shall be considered disabled if the Participant: |
(a) | Is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; |
(b) | Is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company; or |
(c) | Is determined to be totally disabled by the Social Security Administration. |
The determination of whether a Disability exists shall be made by the Administrator.
2.21 | Domestic Relations Order . The words Domestic Relations Order shall mean a judgment, decree or order (including approval of a property settlement agreement) which is made pursuant to a state domestic relations law, which relates to the provision of child support, alimony payments or marital property rights to a spouse, child or other dependent of a Participant (Alternate Payee), and which creates or recognizes the existence of an Alternate Payees right to, or assigns to an Alternate Payee the right to, receive all or a portion of the benefits payable to a Participant. |
2.22 | Effective Date . The words Effective Date shall mean the date the Plan becomes effective, which is June 23, 2008. |
2.23 | Eligible Employee . The words Eligible Employee shall mean an Employee of the Company or Affiliated Company who satisfies the eligibility requirements of Section 3.1. |
2.24 | Employee . The word Employee shall mean any common-law employee of the Company or of any Affiliated Company, whether or not a Board member, but excluding any person serving only in the capacity of Board member of the Company or any Affiliated Company. Notwithstanding the foregoing, the Compensation Committee may, in its discretion, exclude employees of any Affiliated Company from eligibility to participate in the Plan; and the Compensation Committee may, in its discretion, make employees of any subsidiary that is not an Affiliated Company eligible to participate in the Plan. |
7
2.25 | ERISA . The acronym ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended. Whenever a reference is made herein to a specific ERISA section, such reference shall be deemed to include any successor ERISA section having the same or a substantially similar purpose. |
2.26 | 401(k) Plan . The words 401(k) Plan shall mean the J. Alexanders Corporation Savings Incentive and Salary Deferral Plan, as it may be amended. |
2.27 | 401(k) Matching Refund Amount . The words 401(k) Matching Refund Amount shall mean, for a Participant who makes elective deferrals under the 401(k) Plan and receives an allocation of matching contributions under the 401(k) Plan, the refund (if any) attributable to the amount of such matching contributions (not including earnings) allocated to that Participant for a particular plan year of the 401(k) Plan that are determined under the terms of the 401(k) Plan to be in excess of the limitations resulting from the application of the actual contribution percentage test pursuant to section 1.401(m)-2(a) of the Regulations, which amount (less any portion forfeited because the Participant is not fully vested) is refunded to the Participant after the last day of such plan year. |
2.28 | Identification Date . The words Identification Date shall mean the date determined by the Administrator in accordance with section 1.409A-1(i)(3) of the Regulations which is the last day of the 12-month period for determination of Key Employees. Unless otherwise designated, the Identification Date shall be December 31. |
2.29 | Key Employee . The words Key Employee shall mean a key employee of the Company as described in section 416(i)(1)(A)(i), (ii) or (iii) of the Code (without regard to section 416(i)(5) of the Code) (generally, an officer having annual compensation of more than $150,000 (in 2008), as adjusted; a 5% owner; or a 1% owner having annual compensation of more than $150,000), determined at any time during the 12-month period ending on the Identification Date. A Participant who is a Key Employee on an Identification Date shall be treated as a Key Employee for the twelve month period beginning on January 1 (or such other date designated in accordance with Section 7.6) immediately following such Identification Date. For purposes hereof, the term officer shall be determined on the basis of all facts, including the source of his authority, the term for which elected or appointed, and the nature and extent of his duties. Generally, the term officer means an administrative executive who is in regular and continued service. An Employee who merely has the title of an officer, but not the authority of an officer, is not to be considered an officer hereunder. Similarly, an Employee who does not have the title of an officer but has the authority of an officer is an officer for this purpose. Furthermore, for purposes hereof, during any 12-month period following an Identification Date, no more than fifty (50) employees of all members of the controlled group consisting of the Company and all Affiliated Companies, or if less, the greater of three (3) individuals or ten percent (10%) of such employees of all members of such controlled group, shall be treated as officers hereunder. |
2.30 | Matching Amount . The words Matching Amount shall mean an annual amount to be credited to a Participants Deferral Account by the Company pursuant to Section 4.5. |
8
2.31 | Measurement Funds . The words Measurement Funds shall mean hypothetical investments the Participant may elect to value his or her Deferral Account balances. |
2.32 | Participant . The word Participant shall mean an Eligible Employee who participates in the Plan by making a deferral election in a Deferral Agreement. |
2.33 | Participation Commencement Date for Bonus and/or Base Salary . The words Participation Commencement Date for Bonus shall mean, for each Participant, the date that his or her Deferral Agreement first becomes effective for deferral of Bonus as provided in Section 4.4(f). The words Participation Commencement Date for Base Salary shall mean, for each Participant, the date that his or her Deferral Agreement first becomes effective for deferral of Base Salary as provided in Section 4.4(f). |
2.34 | Plan . The word Plan shall mean the J. Alexanders Corporation Deferred Compensation Plan as set forth herein, effective as of the Effective Date, and as it may be later amended. |
2.35 | Plan Year . The words Plan Year shall mean the twelve- (12) month period ending on December 31 in each calendar year, except that the initial Plan Year shall be the short period commencing on June 23, 2008 and ending on December 31, 2008. |
2.36 | Regulations . The word Regulations shall mean the regulations promulgated by the Treasury Department under the Code. |
2.37 | Section 409A . The words Section 409A shall mean section 409A of the Code, related Regulations and guidance thereunder, including such Regulations and guidance promulgated after the Effective Date of the Plan. |
2.38 | Separation from Service . The words Separation from Service shall mean for any Participant the occurrence of any one of the following events: |
(a) The Participant is discharged by the Company;
(b) The Participant voluntarily terminates employment with the Company; or
(c) The Participant dies while employed with the Company.
For purposes of determining whether a Separation from Service has occurred, the term Company shall include any Affiliated Company, and no Separation from Service shall be deemed to have occurred if the Participant remains employed by any Affiliated Company.
A Separation from Service does not occur if the Participant is on military leave, sick leave or other bona fide leave of absence if the period of leave does not exceed six months or such longer period during which the Participants right to reemployment is provided by statute or contract. If the period of leave exceeds six months and the Participants right to reemployment is not provided either by statute or contract, a Separation from Service will be deemed to have occurred on the first day following the six-month period. If the period of leave is due to any medically determinable physical or
9
mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where the impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, a 29 month period of absence may be substituted for the six month period.
Whether a termination of employment has occurred is based on whether the facts and circumstances indicate that the Company and the Participant reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Participant would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than 20 percent of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36 month period (or the full period of services to the Company if the employee has been providing services to the Company for less than 36 months).
If a Participant provides services both as an Employee and as a member of the Board, the services provided as a director are not taken into account in determining whether the Participant has incurred a Separation from Service as an Employee for purposes of this Plan, unless this Plan is aggregated under Section 409A with any plan in which the Participant participates as a director.
All determinations of whether a Separation from Service has occurred will be made in a manner consistent with Section 409A and the Regulations thereunder.
2.39 | Unforeseeable Emergency . The term Unforeseeable Emergency shall mean a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Beneficiary, the Participants spouse, or a dependent of the Participant; loss of the Participants property due to casualty (including the need to rebuild a home not otherwise covered by insurance); or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The purchase of a home and the payment of college tuition are not normally Unforeseeable Emergencies. |
2.40 | USERRA . The acronym USERRA shall mean the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended. |
2.41 | Valuation Date . The words Valuation Date shall mean the dates on which Deferral Amounts, Matching Amounts, Benefit Payments and investment earnings or losses are credited or debited to the Deferral Accounts. Unless otherwise designated in writing by the Administrator, the Valuation Dates shall be March 31, June 30, September 30 and December 31 of each year. The authority of the Administrator to change the Valuation Dates shall include the authority to designate an interim Valuation Date at any time. |
10
ARTICLE 3
ELIGIBILITY AND PARTICIPATION
3.1 | Eligibility . Employees who are classified in any of the following categories: (i) officers of the Company or of any Affiliated Company (except for any Affiliated Company whose employees are excluded by the Compensation Committee), (ii) corporate and regional directors, (iii) corporate managers and (iv) head coaches (i.e., general managers) shall be eligible to participate, commencing on the Participation Commencement Date specified by Section 4.4(f). An Eligible Employee who is transferred during a particular Plan Year to a position other than the categories listed in the preceding sentence shall nonetheless remain an Eligible Employee for the remainder of that Plan Year so long as the Eligible Employee remains an employee of the Company (or any Affiliated Company) for the remainder of such Plan Year. The Compensation Committee may, at any time and in its discretion, add to, subtract or otherwise change the categories of employees who are eligible to participate. |
3.2 | Participation . Each Eligible Employee who makes a deferral election in a Deferral Agreement shall become a Participant on the Participation Commencement Date. |
3.3 | Termination of Participation . Participation shall cease upon the payment to the Participant of the remaining balance in his or her Deferral Account. |
11
ARTICLE 4
ELECTIONS AND CONTRIBUTIONS
4.1 | Deferral Agreement . Each Eligible Employee may elect to defer his or her Compensation by executing, in writing, a Deferral Agreement in accordance with rules and procedures established by the Administrator and the provisions of this Article 4. If an Eligible Employee makes a deferral election hereunder for a Plan Year, then a portion of the Base Salary and/or Bonus which would otherwise be paid to the Participant by the Company shall be retained by the Company and, in lieu thereof, an amount equal to the amount deferred shall constitute a Deferral Amount hereunder and shall be credited to the Participants Deferral Account pursuant to Article 6. |
If a Participant ceases to be an Eligible Employee, the Deferral Agreement for that Participant shall be cancelled (but not prior to the time when such Participant ceases to be an Eligible Employee pursuant to Section 3.1) and that Participant shall not be eligible to enter into another Deferral Agreement unless he or she again becomes an Eligible Employee.
A Participants election under a Deferral Agreement shall remain in effect until terminated or modified by the Participant; provided, however, that such election shall become irrevocable as of each December 31 with respect to Base Salary that is paid in connection with services performed in the immediately following Plan Year and such election shall become irrevocable as of the last day of the Companys fiscal year with respect to a Bonus that is paid in connection with services performed in the immediately following fiscal year. Notwithstanding the foregoing, for a Bonus that is treated as performance based compensation described in Section 4.4(b), the Deferral Agreement as to such Bonus may be revoked no later than the date which is six months prior to the end of the performance period during which the Bonus is earned. Any modification or termination of a Deferral Agreement by a Participant must be in a form prescribed by the Administrator and within any period or before any deadline date that may be established by the Administrator pursuant to Section 4.4(d).
For purposes of determining whether amounts are paid with respect to services performed in a particular year, compensation paid on or after January 1 solely for services performed during the final payroll period described in section 3401(b) of the Code containing the immediately preceding December 31 shall be treated as compensation for services performed in the year when payment is made.
12
4.2 | Types of Deferral Elections . Each Participant may make separate elections in one or more Deferral Agreements as to the following: |
(a) | Base Salary Deferral . With respect to each Plan Year, a Participant may elect to defer a portion of Base Salary by making a deferral election in writing as required by the Administrator. A Participants deferral election shall specify a stated percentage or dollar amount of the Participants Base Salary, which specified percentage or dollar amount shall not be less than one percent (1%) nor exceed twenty-five percent (25%) of the Participants Base Salary. The amount so elected under the deferral election shall be credited to the Participants Deferral Account at the times specified in Article 6. |
(b) | Bonus Deferral . A Participant may elect to defer all or a portion of his or her potential Bonus by making a deferral election in writing as required by the Administrator. A Participants deferral election shall specify a stated percentage or dollar amount of the Participants Bonus, which specified percentage or dollar amount shall not be less than one percent (1%) nor exceed twenty-five percent (25%) of the Participants Bonus. The amount so elected under the deferral election shall be credited to the Participants Deferral Account under the Plan at the time specified in Article 6. |
All elections to make deferrals under the Plan, and all resulting deferrals, shall be subject to such rules, procedures, limits and restrictions as the Administrator may establish from time to time. No election in violation of Section 409A will be effective.
4.3 | Election Irrevocable . A Participants deferral election shall be irrevocable for the entire Plan Year or other period for which it is made (except as provided in Section 7.5 following a distribution due to an Unforeseeable Emergency and as provided in Section 4.4(h) following a determination of Disability). |
4.4 | Timing of Deferral Elections . The following rules govern the timing of all deferral elections under the Plan: |
(a) | Base Salary Deferral . A Participant must complete a Deferral Agreement for Base Salary making the deferral election described in Section 4.2(a) no later than the last day of the Plan Year immediately preceding the Plan Year during which the services will be performed that result in the payment of Base Salary which is deferred (or such earlier date as may be designated by the Administrator as provided in Section 4.4(d)). |
(b) | Bonus Deferral . If a bonus is paid for services rendered entirely within a particular fiscal year of the Company (i.e., qualifies as fiscal year compensation within the meaning of section 1.409A-2(a)(6) of the Regulations), then a Participant must complete a Deferral Agreement for Bonus making the deferral election described in Section 4.2(b) no later than the last day of the Companys fiscal year immediately preceding the fiscal year in which the services are performed for which such Bonus is payable. Notwithstanding the foregoing, if the Bonus can be treated as performance based compensation as described in section 409(a)(4)(B)(iii) of the Code, attributable to a performance period of at least twelve (12) consecutive months, the Deferral Agreement may be completed no later than the date which is six months prior to the end of the performance period during which the Bonus is earned. In each of the above cases, the Administrator may establish an earlier deadline as provided in Section 4.4(d). |
13
(c) | Deferral Elections for Initial Plan Year . Subject to the establishment of an earlier deadline date by the Administrator as provided in Section 4.4(d), for the initial short Plan Year commencing on June 23, 2008, and ending on December 31, 2008, notwithstanding anything to the contrary contained in Section 4.4(a) or 4.4(b): |
(i) | a Participant must complete a Deferral Agreement for Base Salary described in Section 4.2(a) no later than June 22, 2008, in the case of a bi-weekly payroll period, and no later than June 30, 2008, in the case of a semi monthly payroll period; and such Deferral Agreement shall be effective only as to Base Salary with respect to services performed after the Participation Commencement Date; and |
(ii) | a Participant must complete a Deferral Agreement for Bonus described in Section 4.2(b) no later than June 22, 2008, in the case of a bi-weekly payroll period, and no later than June 30, 2008, in the case of a semi monthly payroll period; and such Deferral Agreement shall be effective only as to Bonus with respect to the portion of the Bonus earned after the Participation Commencement Date, determined as the product of the amount of the first Bonus paid after the Participation Commencement Date by the ratio of (i) the number of days remaining in the performance period during which the Bonus is earned after the Participation Commencement Date (including the Participation Commencement Date in this calculation) over (ii) the total number of days in the performance period during which the Bonus is earned. |
(d) | Administrator Determines Deadline . The Administrator may establish a deadline date for completion or revocation of Deferral Agreements of each type set forth in subsections (a), (b) or (c), or a period during which such deferral elections must be completed or revoked. The Administrator may establish different deadline dates for Participants who are paid based on payroll periods of different lengths (e.g., bi-weekly or semi-monthly). Any such designation can not be later than the respective dates set forth in subsections (a), (b) or (c) of this Section 4.4, as applicable. |
(e) | USERRA . The Administrator may allow a deferral election to be made at a different time than specified under this Article 4 as required to satisfy the requirements of USERRA. |
14
(f) | Participation Commencement Date . The Participation Commencement Date for Bonus and/or Base Salary for the initial short Plan Year shall be June 23, 2008, in the case of a bi-weekly payroll period, and July 1, 2008, in the case of a semi-monthly payroll period. For subsequent periods, the Participation Commencement Date for Base Salary shall be the first day of the Plan Year for which the Deferral Agreement is effective, and the Participation Commencement Date for Bonus shall be the first day of the Companys fiscal year (or in the case of performance based compensation described in Section 4.4(b), the date that is six months prior to the end of the performance period) during which the Bonus is earned. Notwithstanding the foregoing, the Administrator may delay the Participation Commencement Date if necessary in order to process the deferral elections, to assure that the satisfactory and timely completion of all requirements described in this Section 4.4 or for other administrative reasons; provided, however, that all Deferral Agreements that take effect on a particular Participation Commencement Date must have been completed, signed and filed with the Administrator no later than the respective dates set forth in subsections (a), (b) or (c) of this Section 4.4, as applicable. |
(g) | Participation Termination Date . A Participant who does not enter into a Deferral Agreement for a particular Plan Year, whose Deferral Agreement is cancelled as provided in Section 4.4(h) or Section 7.5, who terminates his Deferral Agreement as provided in Section 4.1, or who is transferred to a position such that he or she is no longer an Eligible Employee shall nonetheless remain a Participant, even though no Deferral Amounts may be credited to his or her Deferral Account during the period while the Deferral Agreement is not in effect, and such Participant shall continue to receive allocations of investment earnings as provided in Section 6.3. |
(h) | Disability . Upon a determination by the Administrator that a Participant is suffering from a Disability, that Participants Deferral Agreement shall be cancelled. |
4.5 | Matching Amounts . In order to be eligible to receive a Matching Amounts under this Plan for a particular Plan Year, a Participant must have entered into a Deferral Agreement for that Plan Year and must be eligible to receive a matching contribution under the terms of the 401(k) Plan for that Plan Year. At the time specified in Section 6.2, which generally will be after the end of the Plan Year to which the Matching Amount relates, the Company will credit such Participants Deferral Account with a Matching Amount equal to the lesser of the following: |
(a) | the amount of matching contribution that would result from application of the matching formula in the 401(k) Plan for the applicable Plan Year to the elective deferrals in this Plan made by the Participant pursuant to his or her Deferral Agreement for the applicable Plan Year, or |
15
(b) | the excess of (i) the amount of matching contributions that would have been contributed to the 401(k) Plan for the applicable Plan Year if the Participant had made elective deferrals to the 401(k) Plan equal to the sum of the dollar amount of elective deferrals for that Plan Year made both to this Plan and to the 401(k) Plan (disregarding for this purpose any limitations imposed by the Code with regard to excess deferrals within the meaning of section 1.402(g)-1(e)(1)(iii) of the Regulations, the actual deferral percentage test pursuant to section 1.401(k)-2(a) of the Regulations or the actual contribution percentage test pursuant to section 1.401(m)-2(a) of the Regulations), over (ii) the sum of (y) the amount of matching contributions allocated to that Participants account in the 401(k) Plan for that Plan Year and not distributed as excess aggregate contributions pursuant to section 1.401(m)-2(b)(2) of the Regulations and (z) the 401(k) Matching Refund Amount. |
The following hypothetical example is for illustrative purposes only:
During 2009, an Eligible Employee who is 80% vested in the 401(k) Plan earns $90,000 in salary and $10,000 in bonus. The employee elects to defer 2% into the 401(k) Plan (i.e., $1,800) and 3% into this Plan (i.e., $2,700). The Companys matching contribution to the 401(k) Plan is $450 (25% x $1,800). Assume that the percentage testing for the 401(k) Plan requires that $800 of elective deferrals and $200 of matching contributions be refunded to the employee. The actual refund of matching contributions is reduced to $160 because the 20% nonvested portion is forfeited. Thus, elective deferrals equal to $1,000, and matching contributions equal to $250, are retained in the 401(k) Plan.
The employee will be credited with a matching amount in this Plan, such credit occurring in 2010 when the refund is made from the 401(k) Plan, in the amount computed as whichever of the following is smaller:
1. | 25% x $2,700 = $675; or |
2. | The amount of match that would have been received in the 401(k) Plan if the total deferrals of $4,500 had been made to that Plan: |
Maximum 401(k) | = 25% x 3% compensation | |
Match | ||
= 25% x 3% ($100,000) | ||
= $750 |
minus refund of matching from 401(k) Plan |
= $750 - $160 | ||
= $590 |
16
minus the allocation of matching contributions that the employee retains in the 401(k) Plan after the refund: |
= $590 - $250 | ||
= $340 |
Therefore, the employee is allocated $340 as a matching amount in this Plan. |
4.6 | Election of Form of Payment . At the time that an Eligible Employee first completes a Deferral Agreement, the Eligible Employee shall elect a form of payment for Benefit Payments on account of Separation from Service under this Plan. The choices available shall be a single lump sum payment, two annual installments or three annual installments. No election shall be permitted with respect to any Benefit Payment Event other than Separation from Service. The election of an installment form of payment shall not apply if the Separation from Service is because of the Participants death or disability; in either case, the Benefit Payment shall be made in a single lump sum payment. |
The election described above as to form of payment shall be in writing in accordance with rules and procedures established by the Administrator and the provisions of this Article 4. Except as provided in Section 4.7 an election by an Eligible Employee of a particular form of payment shall be irrevocable. If an Eligible Employee should fail to make a timely election upon first entering into a Deferral Agreement, that Eligible Employee shall be deemed to have made an irrevocable election to receive a Benefit Payment resulting from Separation from Service in a single lump sum payment.
4.7 | Change in Election of Form of Payment. The Administrator may at any time change the forms of payment offered hereunder, but any such change by the Administrator shall be applicable only to Eligible Employees who first complete a Deferral Agreement after the date of such action by the Administrator; and, as to Participants who had already been credited with Deferral Amounts prior to such change in the available forms of payment, the new forms of payment may be elected only with respect to Deferral Amounts based on compensation earned after the date of such action by the Administrator. |
17
ARTICLE 5
VESTING
5.1 | Vesting of Participant Deferral Amounts . A Participant will at all times be one hundred percent (100%) vested in all of his or her Deferral Account. |
18
ARTICLE 6
ACCOUNTS AND CREDITS
6.1 | Establishment of Deferral Account. For accounting and computational purposes only, the Administrator will establish and maintain a Deferral Account on behalf of each Participant which will reflect the credits made pursuant to Section 6.2, adjustments for distributions, withdrawals or forfeitures made pursuant to Section 6.3 and adjustments for the earnings, expenses, gains and losses, attributable to the hypothetical investments made with the amounts in the Account as provided in this Article 6. The Administrator will establish and maintain such other records and accounts, as it decides in its discretion to be reasonably required or appropriate to discharge its duties under the Plan. All amounts credited to the Deferral Account of any Participant or Beneficiary shall constitute a general, unsecured liability of the Company to such person. |
6.2 | Crediting of Deferral Amounts . Participant Deferral Amounts shall be credited to the Participants Deferral Account as of the date the Base Salary and/or Bonus would have otherwise been paid to the Participant, absent the deferral election. Matching Amounts, if any, for a Plan Year shall be credited to the Participants Deferral Account as of a date determined in the sole discretion of the Plan Administrator, but no earlier than the date after the end of that Plan Year when the 401(k) Matching Refund Amount for that Plan Year is determined. |
6.3 | Adjustment of Deferral Account . The Deferral Account shall be adjusted on each Valuation Date for earnings, gains and losses as if such Deferral Account held actual assets and such assets were invested in Measurement Funds in accordance with Section 6.4. The value of each Participants Deferral Account shall be adjusted on each Valuation Date, as follows, using the terms and methods in the order defined below: |
(a) | Beginning Balance . The Ending Balance as of the preceding Valuation Date. |
(b) | Ending Balance . The Beginning Balance, plus Deferral Amounts and Matching Amounts, plus investment earnings or minus investment losses (as determined in Section 6.3(d)), minus any Benefit Payments and forfeitures (as provided in Section 6.5), which occur during the period since the last Valuation Date. |
(c) | Investment Earnings . Investment earnings, gains and losses determined pursuant to this Article 6 will be credited to each Participants Deferral Account as of the current Valuation Date. |
(d) |
Earnings Determination . Investment earnings, gains and losses shall be determined on a Valuation Date based on the rate of return (which may be positive or negative) in the Measurement Funds designated by the Participant since the last Valuation Date as applied to the sum of the Beginning Balance and one-half (1/2) the Deferral Amounts credited since the last Valuation Date, minus the amount of Benefit Payments (and forfeitures provided in Section 6.5) since the last Valuation Date. Matching Amounts shall not be taken into account for this purpose until the Valuation Date immediately following the date determined |
19
by the Administrator as specified in Section 6.2. Investment earnings, gains, and losses shall continue to be determined and credited or debited to the Deferral Account of a Participant who has elected the installment form of payment until the last installment is distributed. |
6.4 | Measurement Funds . The Administrator shall designate Measurement Funds for the valuation of each Participants Deferral Account as if such Deferral Account held actual assets. The Measurement Funds may include but shall not be limited to the following types of funds as determined by the Company: |
(a) | mutual funds, including without limitation, equity funds, money market funds, fixed income funds and balanced funds; |
(b) | any insurance companys general account; |
(c) | any special account established and maintained by any insurance company; or |
(d) | a hypothetical Measurement Fund providing a rate of return that is either fixed or variable by reference to the prime rate, the rate on United States Treasury obligations with specified maturities or other reasonable standard as determined in the discretion of the Administrator. |
The Administrator shall have the sole discretion to determine the number of Measurement Funds to be designated hereunder and the nature of the funds and may change or eliminate the Measurement Funds designated hereunder from time to time.
A Participant shall direct the allocation of his or her Deferral Account among the Measurement Funds designated by the Company as though such Deferral Account held actual assets. Any such directions of investment shall be subject to such rules as the Administrator may prescribe, including, but not limited to, rules concerning the manner of providing investment directions and the frequency of changing such investment directions. In the event a Participant does not direct the investment of any portion of his or her Deferral Account, such undirected portion shall be deemed to be invested in the hypothetical Measurement Fund described in clause (d) above or in whichever other Measurement Fund may be designated from time to time as a default election by the Administrator.
6.5 | Forfeiture . If the Participant commits an act or acts of fraud, embezzlement or theft against the Company or any Affiliated Company, and if full restitution has not been provided to the Company outside this Plan, then the amount that the Company reasonably determines will be required to provide restitution shall be forfeited and immediately deducted from the Deferral Account of such Participant at the time of such determination. |
20
ARTICLE 7
BENEFIT DISTRIBUTIONS
7.1 | Normal Form of Benefits . Except as otherwise provided hereunder, the Participant shall receive a single sum payment no earlier than the Benefit Payment Commencement Date and during such period of time following such Benefit Payment Commencement Date as may be prescribed under the terms of this Plan. |
7.2 | Amount of Benefits . Except for distributions on account of an Unforeseeable Emergency or as ordered by a QDRO, or as otherwise provided hereunder, the amount of Benefit Payment as a lump sum distribution shall be the balance of the Deferral Account as of the Valuation Date next preceding the date that the Benefit Payment Event occurs, increased by any Deferral Amounts subsequent to such Valuation Date and not included in the balance of the Deferral Account on the date of distribution, but not adjusted for any investment earnings or losses since such Valuation Date. If the Benefit Payment is made in installments as elected by the Participant pursuant to Section 4.6, the amount of each such installment shall be equal to a fraction of the balance of the Deferral Account as of the Valuation Date next preceding the date that the installment payment occurs, such fraction being equal to the integer one (1) divided by the number of installments remaining to be paid. In addition, investment earnings, gains and losses determined pursuant to Article 6 shall continue to be credited to or debited from the Participants Deferral Account until the last installment is distributed. |
7.3 | Benefit Payment Events . Benefit Payment Events which entitle a Participant (or Beneficiary) to receive a distribution of his or her benefits shall be any of the following: |
(a) | Separation from Service by the Participant; |
(b) | Death of the Participant; |
(c) | Determination by the Administrator that the Participant suffers from a Disability; or |
(d) | Determination by the Administrator, upon application by the Participant, that the Participant has suffered an Unforeseeable Emergency. |
7.4 | Time of Payment . Upon the occurrence of a Benefit Payment Event specified in Section 7.3, the Benefit Payment shall be made (or commence if paid in installments) during the 90-day period commencing on the Benefit Payment Commencement Date, which shall be the date that the Benefit Payment Event occurs, and ending on the 90 th day thereafter. If the Benefit Payments are to be made in installments following a Separation from Service pursuant to an election described in Section 4.6, the second Benefit Payment shall be made during the period commencing on the first anniversary of the Participants Separation from Service and ending on the 90 th day thereafter; and the third Benefit Payment (if three annual installments are elected) shall be made during the period commencing on the second anniversary of the Participants Separation from Service and ending on the 90 th day thereafter. |
21
The Administrator shall determine, in its sole discretion, the actual date of payment within each such 90-day period. The date of payment shall be subject to delay to a date later than such 90-day period, or acceleration to a date prior to the earliest date for such Benefit Payment, only as otherwise provided in this Article 7 and in Article 13.
7.5 | Unforeseeable Emergency . A Participant may request a withdrawal due to an Unforeseeable Emergency. The request must be in writing and must be submitted to the Administrator along with evidence that the circumstances constitute an Unforeseeable Emergency. The Administrator has the discretion to require whatever evidence it deems necessary to determine whether a distribution is warranted. Whether a Participant has incurred an Unforeseeable Emergency will be determined by the Administrator on the basis of the relevant facts and circumstances in its sole discretion, but, in no event, will an Unforeseeable Emergency be deemed to exist if the hardship can be relieved (a) through reimbursement or compensation by insurance or otherwise, (b) by liquidation of the Participants assets to the extent such liquidation would not itself cause severe financial hardship, or (c) by cessation of deferrals under the Plan. A distribution due to an Unforeseeable Emergency must be limited to the amount reasonably necessary to satisfy the emergency need and may include any amounts necessary to pay any federal, state or local income tax penalties reasonably anticipated to result from the distribution. The distribution will be made in the form of a single lump cash payment. A Participants Deferral Agreement for the remainder of the Plan Year will be cancelled upon such a withdrawal due to Unforeseeable Emergency. If the payment of the Participants Deferral Account is being delayed in accordance with Section 7.6 at the time he experiences an Unforeseeable Emergency, the right to receive a distribution on account of an Unforeseeable Emergency shall not be available to such Participant until the expiration of the six month period of delay required by Section 7.6. |
7.6 | Required Delay in Payment to Key Employees . Except as otherwise provided in this Section 7.6, a distribution made because of Separation from Service to a Participant who is a Key Employee as of the date of his Separation from Service shall not occur before the date which is six months after the Separation from Service. |
For this purpose a Participant who is a Key Employee on an Identification Date shall be treated as Key Employee for the twelve month period beginning on the January 1 immediately following such Identification Date. The Administrator may designate another date for commencement of this twelve month period, provided that such date must follow the Identification Date and occur no later than the first day of the fourth month thereafter, provided that such designation is made in accordance with Regulations under Section 409A and is the same for all nonqualified deferred compensation plans of the Company or any Affiliated Company.
The Plan Sponsor may elect to apply an alternative method to identify Participants who will be treated as Key Employees for purposes of the six month delay in distributions if the method satisfies each of the following requirements: the alternative method is reasonably designed to include all Key Employees, is an objectively determinable standard provided no direct or indirect election to any Participant regarding its application, and results in either all Key Employees or no more than 200 Key Employees being identified in the class as of any date. Use of an alternative method that satisfies these requirements will not be treated as a change in the time and form of payment for purposes of section 1.409A-2(b) of the Regulations.
22
The six month delay does not apply to payments pursuant to a Domestic Relations Order described in Section 7.8 or to payments that occur after the death of the Participant.
7.7 | Permissible Delays in Payment . Distributions may be delayed beyond the date payment would otherwise occur in accordance with the provisions of this Article 7 in any of the following circumstances as long as the Employer treats all payments to similarly situated Participants on a reasonably consistent basis. |
(a) | The Administrator may delay payment if it reasonably anticipates that its deduction with respect to such payment would be limited or eliminated by the application of section 162(m) of the Code. Payment must be made during the Participants first taxable year in which the Administrator reasonably anticipates, or should reasonably anticipate, that if the payment is made during such year the deduction of such payment will not be barred by the application of section 162(m) of the Code or during the period beginning with the Participants Separation from Service and ending on the later of the last day of the Companys taxable year in which the Participant separates from service or the 15 th day of the third month following the Participants Separation from Service. |
(b) | The Administrator may also delay payment if it reasonably anticipates that the making of the payment will violate federal securities laws or other applicable laws provided payment is made at the earliest date on which the Administrator reasonably anticipates that the making of the payment will not cause such violation. |
(c) | The Administrator may delay payment during the periods specified in Article 12 for review and appeal of claims or during any other period while there is a bona fide dispute as to the amount or timing of such payment in accordance with section 1.409A-3(g) of the Regulations. |
(d) | The Company reserves the right to amend the Plan to provide for a delay in payment upon such other events and conditions as the Secretary of the Treasury may prescribe in generally applicable guidance published in the Internal Revenue Bulletin. |
7.8 | Permitted Acceleration of Payment . The Administrator may permit acceleration of the time or schedule of any payment or amount scheduled to be paid pursuant to a payment under the Plan provided such acceleration would be permitted by the provisions of section 1.409A-3(j)(4) of the Regulations. The Administrator shall not allow any Participant discretion with respect to whether a payment will be accelerated and shall not permit any election, direct or indirect, by a Participant as to whether the Administrators discretion under this Section. 7.8 will be exercised. Acceleration of payments shall be allowed at such times and in such amounts as specified in a Domestic Relations Order which is determined by the Administrator to be valid and which does not require the Plan to pay benefits in excess of the balance of the Participants Deferral Account. The |
23
Administrator may require that reasonable expenses incurred and paid by the Company in evaluating the Domestic Relations Order and complying with its terms shall be deducted from the Deferral Account of the Participant. Acceleration of benefit payments shall also occur under any of the circumstances when the Plan is terminated pursuant to Section 13.2.
24
ARTICLE 8
BENEFICIARIES
8.1 | Automatic Beneficiary . Unless a Participant has designated a Beneficiary in accordance with the provisions of Section 8.2, the Beneficiary shall be deemed to be the person or persons in the first of the following classes in which there are any survivors of such Participant: |
(a) | spouse at the time of Participants death; |
(b) | issue, per stirpes; or |
(c) | Participants estate. |
8.2 | Designated Beneficiary or Beneficiaries . A Participant may designate the Beneficiary or Beneficiaries to receive any Benefit Payment due hereunder following the Participants death, using a form provided by the Administrator. In the event a Participant dies at a time when a designation is on file which does not dispose of the total benefit payable under this Plan, then the portion of such benefit payable on behalf of said Participant, the disposition of which was not determined by the deceaseds designation, shall be paid to a Beneficiary determined under Section 8.1. Any ambiguity in a Beneficiary designation shall be resolved by the Administrator. |
8.3 | Death . If the Participant dies before any Benefit Payment is made, the balance credited to a Participants Deferral Account shall be paid to his Beneficiary in a single lump sum payment within the 90-day period following the date of the Participants death. If the Participant dies after Benefit Payments have commenced in installments, the remaining amount in the Participants Deferral Account shall be paid to the Beneficiary in a single lump sum payment within the 90-day period following the date of the Participants death. |
25
ARTICLE 9
RIGHTS OF PARTICIPANTS AND BENEFICIARIES
9.1 | Creditor Status of Participant and Beneficiary . The Plan constitutes the unfunded, unsecured promise of the Company to make Benefit Payments to each Participant and Beneficiary in the future and shall be a liability solely against the general assets of the Company. The Company shall not be required to segregate, set aside or escrow any amounts for the benefit of any Participant or Beneficiary. Each Participant and Beneficiary shall have the status of a general unsecured creditor of the Company and may look only to the Company and its general assets for Benefit Payments under the Plan. |
9.2 | Rights with Respect to a Trust . Any trust and any assets held thereby to assist the Company in meeting its obligations under the Plan shall in no way be deemed to controvert the provisions of Section 9.1. |
9.3 | Investments . In its sole discretion, the Company may acquire mutual fund shares, insurance policies, annuities or other financial vehicles for the purpose of providing future assets of the Company to meet its anticipated liabilities under the Plan. Such mutual fund shares, policies, annuities or other investments shall at all times be and remain unrestricted general property and assets of the Company or property of a trust. Participants and Beneficiaries shall have no rights, other than as general creditors, with respect to such mutual fund shares, policies, annuities or other acquired assets. |
26
ARTICLE 10
TRUST
10.1 | Possible Establishment of Trust . The Company may but is not required to establish a trust to hold amounts which the Company may contribute from time to time to correspond to some or all amounts credited to the Deferred Accounts of Participants. If the Company elects to establish such a trust, the provisions of the remainder of this Article 10 shall become operative. |
10.2 | Grantor Trust . Any trust established by the Company shall be between the Company and a trustee pursuant to a separate written agreement under which assets are held, administered and managed, subject to the claims of the Companys creditors in the event of the insolvency. The trust is intended to be treated as a grantor trust under the Code, and the establishment of the trust shall not cause the Participant to realize current income on amounts contributed thereto. The Company must notify the trustee in the event of a bankruptcy or insolvency. |
10.3 | Obligations of the Company . Notwithstanding the fact that a trust may be established hereunder, the Company shall remain liable for paying the benefits under the Plan. However, any payment of benefits to a Participant or a Beneficiary made by such a trust shall satisfy the Companys obligation to make such payment to such person. |
10.4 | Trust Terms . A trust established under Section 10.1 may be irrevocable by the Company or may become irrevocable in accordance with its terms in the event of a Change in Control. Such a trust may contain such other terms and conditions as the Company may determine to be necessary or desirable. The Company may terminate or amend a trust established under Section 10.1 at any time, and in any manner it deems necessary or desirable, subject to the preceding sentence and the terms of any agreement under which any such trust is established or maintained. |
10.5 | Investment of Trust Funds . Any amounts contributed to the trust by the Company shall be invested by the trustee in accordance with the provisions of the trust and the instructions of the Administrator. Trust investments need not reflect the hypothetical investments selected by Participants from the Measurement Funds under Section 6.4 for the purpose of adjusting Deferred Accounts, and the actual earnings or investment results of the trust will not affect the hypothetical investment adjustments to Deferred Accounts under the Plan. |
27
ARTICLE 11
ADMINISTRATION
11.1 | Appointment of Administrator . The Administrator shall be the committee described in Section 2.1, unless the Board appoints another person(s), corporation or partnership (including the Company itself) as Administrator in its sole discretion. The Administrator may be removed or resign upon thirty (30) days written notice or such lesser period of notice as is mutually agreeable. |
11.2 | Powers and Duties of the Administrator . Except as expressly otherwise set forth herein, the Administrator shall have the authority and responsibility granted or imposed on an administrator by ERISA. The Administrator shall determine any and all questions of fact, resolve all questions of interpretation of the Plan which may arise under any of the provisions of the Plan as to which no other provision for determination is made hereunder, and exercise all other powers and discretions necessary to be exercised under the terms of the Plan which it is herein given or for which no contrary provision is made. The Administrator shall have full power and discretion to interpret the Plan and related documents, to resolve ambiguities, inconsistencies and omissions, to determine any question of fact, and to determine the rights and benefits, if any, of any Participant, or other applicant, in accordance with the provisions of the Plan. Subject to the provisions of the claims procedure specified in Article 12, the Administrators decision with respect to any matter shall be final and binding on all parties concerned, and neither the Administrator nor any of its directors, officers, employees or delegates nor, where applicable, the directors, officers or employees of any delegate, shall be liable in that regard except for gross abuse of the discretion given it and them under the terms of the Plan. All determinations of the Administrator shall be made in a uniform, consistent and nondiscriminatory manner with respect to all Participants and Beneficiaries in similar circumstances. The Administrator, from time to time, may designate one or more persons or agents to carry out any or all of its duties hereunder. |
11.3 | Engagement of Advisors . The Administrator may employ actuaries, attorneys, accountants, brokers, employee benefit consultants, and other specialists to render advice concerning any responsibility the Administrator, Appeals Committee or Compensation Committee has under the Plan. Such persons may also be advisors to the Company. |
11.4 | Payment of Costs and Expenses . The costs and expenses incurred in the administration of the Plan shall be paid in either of the following manners as determined by the Company in its sole discretion: |
(a) | The expenses may be paid directly by the Company; or |
(b) | The expenses may be paid out of the trust, if any, established under Article 10.1 (subject to any restriction contained in such trust or required by law). |
Such costs and expenses include those incident to the performance of the responsibilities of the Administrator, Appeals Committee or Compensation Committee, including but not limited to, claims, administration fees and costs, fees of accountants, legal counsel and other specialists, bonding expenses, and other costs of administering the Plan.
28
Notwithstanding the foregoing, in no event will any person serving in the capacity of Administrator, Appeals Committee member or Compensation Committee member who is a full-time employee of the Company be entitled to any compensation for such services.
29
ARTICLE 12
CLAIMS PROCEDURE
12.1 | Claim for Benefits . Any claim for benefits under the Plan shall be made in writing to the Administrator in such a manner as the Administrator shall reasonably prescribe. The Administrator shall process each such claim and determine entitlement to benefits within thirty (30) days following the receipt of a completed application for benefits unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial thirty- (30) day period. In no event shall such extension exceed a period of thirty (30) days from the end of such initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date as of which the Administrator expects to render the final decision. |
12.2 | Denial of a Claim . If such a claim is wholly or partially denied by the Administrator, the Administrator shall notify the claimant of the denial of the claim in writing, delivered in person or mailed by first class mail to the claimants last known address. Such notice of denial shall contain: |
(a) | the specific reason or reasons for denial of the claim; |
(b) | a reference to the relevant Plan provisions upon which the denial is based; |
(c) | a description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why such material or information is necessary; and |
(d) | an explanation of the Plans claim review procedure. |
If no such notice is provided, and if the claim has not been granted within the time specified above for approval of the claim, the claim shall be deemed denied and subject to review as described below. The interpretations, determinations and decisions of the Administrator shall be final and binding upon all persons with respect to any right, benefit and privilege hereunder, subject to the review procedures set forth in this Article 12.
12.3 | Request for Review of a Denial of a Claim for Benefits . Any claimant or authorized representative of the claimant whose claim for benefits under the Plan has been denied or deemed denied, in whole or in part, by the Administrator may upon written notice delivered to the Appeals Committee request a review by the Appeals Committee of such denial of Participants claim for benefits. Such claimant shall have sixty (60) days from the date the claim is deemed denied, or sixty (60) days from receipt of the notice denying the claim, as the case may be, in which to request such a review. The claimants notice must specify the relief requested and the reason such claimant believes the denial should be reversed. |
30
12.4 | Appeals Procedure . The Appeals Committee is hereby authorized to review the facts and relevant documents, including the Plan document, to interpret the Plan and other relevant documents and to render a decision on the appeal of the claimant. Such review may be made by written briefs submitted by the claimant and the Administrator or at a hearing, or by both, as shall be deemed necessary by the Appeals Committee. Upon receipt of a request for review, the Appeals Committee shall schedule a hearing to be held (subject to reasonable scheduling conflicts) not less than thirty (30) nor more than forty-five (45) days from the receipt of such request. The date and time of such hearing shall be designated by the Appeals Committee upon not less than fifteen (15) days notice to the claimant and the Administrator unless both accept shorter notice. The notice shall specify that such claimant must indicate, in writing, at least five (5) days in advance of the time established for such hearing, claimants intention to appear at the appointed time and place, or the hearing will automatically be canceled. The reply shall specify any other persons who will accompany claimant to the hearing, or such other persons will not be admitted to the hearing. The Appeals Committee shall make every effort to schedule the hearing on a day and at a time which is convenient to both the claimant and the Administrator. The hearing will be scheduled at the Companys headquarters unless the Appeals Committee determines that another location would be more appropriate. The Company shall provide the claimant, upon request and free of charge, reasonable access to and copies of all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimants claim for benefits and claimant may submit issues and comments in writing prior to or during the hearing. |
12.5 | Decision upon Review of Denial of Claim for Benefits . After the review has been completed, the Appeals Committee shall render a decision, in writing, a copy of which shall be sent to both the claimant and the Administrator. In making its decision, the Appeals Committee shall have full power, authority, and discretion to determine any and all questions of fact, resolve all questions of interpretation of this instrument or related documents which may arise under any of the provisions of the Plan or such documents as to which no other provision for determination is made hereunder, and exercise all other powers and discretions necessary to be exercised under the terms of the Plan which it is herein given or for which no contrary provision is made and to determine the right to benefits of, and the amount of benefits, if any, payable to, any person in accordance with the provisions of the Plan. The Appeals Committee shall render a decision on the claim review promptly, but not more than forty-five (45) days after the receipt of the claimants request for review, unless a hearing is held, in which case the forty-five- (45) day period shall be extended to thirty (30) days after the date of the hearing. Such decision shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, shall contain specific references to the pertinent provisions of the Plan and related documents upon which the decision is based, and shall state that the claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimants claim for benefits. The decision on review shall be furnished to the claimant within the appropriate time described above. If the decision on review is not furnished within such time, the claim shall be deemed denied on review at the end of such period. There shall be no further appeal from a decision rendered by the Appeals Committee. The decision of the Appeals Committee shall be final and binding in all respects on the Administrator, the Company and the claimant. Except as otherwise provided by law, the review procedures of this Article 11 shall be the claimants sole and exclusive remedy and shall be in lieu of all actions at law, in equity, pursuant to arbitration or otherwise. |
31
12.6 | Establishment of Appeals Committee . The Appeals Committee shall be the Compensation Committee, unless the Board appoints another person(s) as such committee in its sole discretion. The members of the Appeals Committee shall remain in office at the will of the Board, and the Board, from time to time, may remove any of said members of the Appeals Committee with or without cause. A member of the Appeals Committee may resign upon written notice to the remaining member or members of the Appeals Committee and to the Board, respectively. The fact that a person is a Participant shall not disqualify them from acting as a member of the Appeals Committee, nor shall any member of the Appeals Committee be disqualified from acting on any question because of Participants interest therein, except that no member of the Appeals Committee may act on any claim which such member has brought as a Participant or Beneficiary under the Plan. All communications to the Appeals Committee shall be addressed to its Secretary at the address of the Company. |
32
ARTICLE 13
AMENDMENT AND TERMINATION
13.1 | Power to Amend . Except as otherwise provided in this Section 13.1 following a Change in Control, the Plan may be amended by the Company at any time, but no such amendment or modification shall deprive any current or former Participant or Beneficiary of all or any portion of his Deferred Account which had accrued prior to the Amendment. Such amendment shall be in writing and authorized by the Board. The Plan may not be amended during the two-year period following a Change in Control except to terminate the Plan pursuant to Section 13.2(c) and to amend the Plan in a consistent manner to facilitate distributions under such Section 13.2(c). Notwithstanding the foregoing, the Company may amend this Plan in any manner that it deems necessary to comply with Section 409A or Department of the Treasury guidance published with respect thereto. |
13.2 | Power to Terminate . The Plan may be terminated by the Company under one of the following conditions: |
(a) | The Company may terminate the Plan at its sole discretion, provided that: |
(i) | All arrangements sponsored by the Company that would be aggregated with this Plan under section 1.409A-1(c)(2) of the Regulations are terminated with respect to all participants; |
(ii) | No payments will be made, other than those otherwise payable under the terms of the Plan absent a Plan termination, within twelve (12) months of the termination of the Plan; and |
(iii) | All payments will be made within twenty-four (24) months of such termination; |
(iv) | The Company does not adopt a new arrangement that would be aggregated with any terminated arrangement under Section 409A and the Regulations thereunder at any time within the three year period following the date of termination of the Plan, and |
(v) | The termination does not occur proximate to a downturn in the financial health of the Company. |
(b) | The Company, at its discretion, may terminate the Plan within twelve (12) months of a corporate dissolution taxed under section 331 of the Code, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A), provided that amounts deferred under the Plan are included in the gross income of Participants in the latest of the following years (or, if earlier, the taxable year in which the amount is actually or constructively received): |
(i) | The calendar year in which the Plan termination occurs; |
33
(ii) | The calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or |
(iii) | The first calendar year in which the payment is administratively practicable; |
(c) | The Company, at its discretion, may terminate the Plan pursuant to irrevocable action taken by the Company within the thirty (30) days preceding or the twelve (12) months following a Change in Control, provided: |
(i) | All agreements, methods, programs and other arrangements sponsored by the Company (or its successor) immediately after the Change in Control which are treated as a single plan under section 1.409A-1(c)(2) of the Regulation are also terminated; |
(ii) | All payments to Participants are made within twelve (12) months of the date of Plan termination; and |
(iii) | All participants under the other terminated similar arrangements described in clause (i) are required to receive all amounts of deferred compensation within twelve (12) months of the action taken by the Company (or its successor) to terminate such arrangements. |
(d) | The Company may amend the Plan to provide that termination of the Plan will occur under such conditions and events as may be prescribed by the Secretary of the Treasury in generally applicable guidance published in the Internal Revenue Bulletin. |
A Plan termination shall not reduce the amounts credited to the Deferral Account of any Participant or the vesting of any Participant, determined as of the date of such termination. Such termination shall be in writing and authorized by the Board.
13.3 | No Liability for Plan Amendment or Termination . Neither the Company, nor any officer, nor any Board member thereof shall have any liability as a result of the amendment or termination of the Plan. Without limiting the generality of the foregoing, the Company shall have no liability for terminating the Plan notwithstanding the fact that a Participant may have expected to have future allocations made on Participants behalf hereunder had the Plan remained in effect. |
34
ARTICLE 14
MISCELLANEOUS
14.1 | Non-Alienation . Except for payments to an Alternate Payee pursuant to a Domestic Relations Order, no benefits or amounts credited to any Deferral Account under the Plan shall be subject in any manner to be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, attached, garnished or charged in any manner (either at law or in equity), and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber, attach, garnish or charge the same shall be void; nor shall any such benefits or amounts in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefits or amounts as are herein provided to Participant. Notwithstanding the preceding, the benefit payable from a Participants Deferral Account may be reduced, at the discretion of the Administrator, to reduce or satisfy any debt or liability to the Company. |
14.2 | Tax Withholding . The Company may withhold from a Participants compensation or any Benefit Payment made by it under the Plan such amount or amounts as may be required for purposes of complying with the tax withholding or other provisions of the Code or the Social Security Act or any state or local income or employment tax act or for purposes of paying any estate, inheritance or other tax attributable to any amounts payable hereunder. |
14.3 | Incapacity . If the Administrator determines that any Participant or other person entitled to payments under the Plan is incompetent by reason of physical or mental disability and is consequently unable to give a valid receipt for payments made hereunder, or is a minor, the Administrator may order the payments becoming due to such person to be made to another person for the Participants benefit, without responsibility on the part of the Administrator to follow the application of amounts so paid. Payments made pursuant to this Section 14.3 shall completely discharge the Administrator, the Company and the Appeals Committee with respect to such payments. |
14.4 | Administrative Forms . All applications, elections and designations in connection with the Plan made by a Participant or other person shall become effective only when duly executed on forms as provided by the Administrator and filed with the Administrator. |
14.5 | Independence of Plan . Except as otherwise expressly provided herein, the Plan shall be independent of, and in addition to, any other benefit agreement or plan of the Company or any rights that may exist from time to time thereunder. |
14.6 | No Employment Rights Created . The Plan shall not be deemed to constitute a contract conferring upon any Participant the right to remain employed by the Company for any period of time. |
35
14.7 | Responsibility for Legal Effect . Neither the Company, the Administrator, the Compensation Committee, Appeals Committee, nor any officer, member, delegate or agent of any of them, makes any representations or warranties, express or implied, or assumes any responsibility concerning the legal, tax, or other implications or effects of the Plan. Without limiting the generality of the foregoing, the Company shall not have any liability for the tax liability which a Participant may incur resulting from participation in the Plan or the payment of benefits hereunder. |
14.8 | Companys Liability . The Companys liability for the payment of benefits under the Plan shall be defined only by the Plan and by the Deferral Agreements entered into between a Participant and the Company. The Company shall have no obligation or liability to a Participant under the Plan except as provided by the Plan and any Deferral Agreement with such Participant. |
14.9 | Limitation of Duties . The Company, the Compensation Committee, the Administrator, the Appeals Committee, and their respective officers, members, employees and agents shall have no duty or responsibility under the Plan other than the duties and responsibilities expressly assigned to them herein or delegated to them pursuant hereto. None of them shall have any duty or responsibility with respect to the duties or responsibilities assigned or delegated to another of them. |
14.10 | Limitation of Companys Liability . Any right or authority exercisable by the Company, pursuant to any provision of the Plan, shall be exercised in the Companys capacity as sponsor of the Plan, or on behalf of the Company in such capacity, and not in a fiduciary capacity, and may be exercised without the approval or consent of any person in a fiduciary capacity. Neither the Company, nor any of its respective officers, members, employees, agents and delegates, shall have any liability to any party for its exercise of any such right or authority. |
14.11 | Successors . The terms and conditions of the Plan shall inure to the benefit of and bind the Company and their successors, the Participants, their Beneficiaries and the personal representatives of the Participants and their Beneficiaries. |
14.12 | Controlling Law . The Plan shall be construed in accordance with the laws of the State of Tennessee to the extent not preempted by laws of the United States. |
14.13 | Notice . Any notice or filing required or permitted to be given to the Administrator under the Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below: |
J. Alexanders Corporation
3401 West End Avenue, Suite 260
Nashville, Tennessee 37203
Attn: Administrator, J. Alexanders Corporation Deferred Compensation Plan
14.14 | Headings and Titles . The Article headings and titles of Articles used in the Plan are for convenience of reference only and shall not be considered in construing the Plan. |
14.15 | General Rules of Construction . The masculine gender shall include the feminine and neuter, and vice versa, as the context shall require. The singular number shall include the plural, and vice versa, as the context shall require. The present tense of a verb shall include the past and future tenses, and vice versa, as the context may require. |
36
14.16 | Severability . In the event that any provision or term of the Plan, or any agreement or instrument required by the Administrator, is determined by a judicial, quasi judicial or administrative body to be void or not enforceable for any reason, all other provisions or terms of the Plan or such agreement or instrument shall remain in full force and effect and shall be enforceable as if such void or nonenforceable provision or term had never been a part of the Plan, or such agreement or instrument except as to the extent the Administrator determines such result would have been contrary to the intent of the Company in establishing and maintaining the Plan. |
14.17 | Indemnification . The Company shall indemnify, defend, and hold harmless any employee, officer or Board member of the Company for all acts taken or omitted in carrying out the responsibilities of the Company, Compensation Committee, Administrator or Appeals Committee under the terms of the Plan. This indemnification for all such acts taken or omitted is intentionally broad, but shall not provide indemnification for embezzlement or diversion of Plan funds for the benefit of any such individual. The Company shall indemnify any such individual for expenses of defending an action by a Participant, Beneficiary, service provider, government entity or other person, including reasonable legal fees and other costs of such defense. The Company shall also reimburse any such individual for any monetary recovery in a successful action against such individual in any federal or state court or arbitration. In addition, if a claim is settled out of court with the written concurrence of the Company, the Company shall indemnify any such individual for any monetary liability under any such settlement, and the expenses thereof, but no indemnification shall be provided if the claim is settled without the written consent of the Company. Such indemnification will not be provided to any person who is not a present or former employee, officer or Board member of the Company nor shall it be provided for any claim by the Company against any such individual. Indemnification under this Section 14.17 shall not be applicable to any person if the cost, loss, liability, or expense is due to the persons gross negligence, fraud or willful misconduct or if the person refuses to assist in the defense of the claim against him. |
37
Exhibit 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of December 26, 2008, (the Agreement ), is by and between J. Alexanders Corporation, a Tennessee corporation (the Company ), and Lonnie J. Stout II (the Executive ).
WHEREAS , the Company desires to continue to employ the Executive to serve as Chairman, Chief Executive Officer and President of the Company and the Executive desires to hold such positions under the terms and conditions of this Agreement; and
WHEREAS , the parties desire to enter into this Agreement setting forth the terms and conditions of the employment relationship between the Executive and the Company.
NOW, THEREFORE , intending to be legally bound hereby, the parties agree as follows:
1. Employment . The Company hereby employs the Executive (directly or through a wholly owned subsidiary) and the Executive hereby agrees to continue his employment with the Company upon the terms and subject to the conditions set forth herein.
2. Term .
(a) Subject to termination pursuant to Section 9 , the term of the employment by the Company of the Executive pursuant to this Agreement (as the same may be renewed or extended, the Term ) will commence on the date hereof (the Effective Date ) and terminate on December 25, 2011.
(b) Commencing on December 26, 2011 and on each subsequent anniversary thereof, this Agreement shall automatically renew for successive one-year periods upon all terms and conditions herein, unless either party shall provide written notice to the other not less than ninety (90) days prior to the expiration of the Term. Notwithstanding any other provision of this Agreement, any non-renewal by the Company of this Agreement shall constitute a termination by the Company without Cause and will serve as a termination event giving rise to the Executives right to receive payments pursuant to Section 9(e) as if the expiration of this Agreement were the Date of Termination, unless employment continues after the expiration of this Agreement on terms mutually agreed by the Company and the Executive.
3. Position . During the Term, the Executive will serve as Chairman, Chief Executive Officer and President of the Company performing duties commensurate with such positions and will perform such additional duties as the Board of Directors of the Company (the Board ) will determine. The Executive will report directly to the Board. The Executive agrees to serve, without any additional compensation, as a director of the Company and as a member of the board of directors and/or as an officer of any subsidiary of the Company. If the Executives employment is terminated for any reason, whether such termination is voluntary or involuntary, the Executive will resign as a director of the Company (and as a director and/or officer of any of its subsidiaries), such resignation to be effective no later than the date of termination of the Executives employment with the Company.
4. Duties . During the Term, the Executive will devote his full time and attention during normal business hours to the business and affairs of the Company and its subsidiaries (the Business ); provided , however , that the Executive will be permitted to devote reasonable periods of time to charitable and community activities, so long as such activities do not interfere with the performance of the Executives responsibilities under this Agreement.
5. Salary and Bonus .
(a) For purposes of this Agreement, the Initial Contract Year will mean the period commencing on the Effective Date and ending on December 25, 2009. A Contract Year will mean the Initial Contract Year and any anniversary thereof.
(b) During the Initial Contract Year, the Company will pay the Executive a base salary at the rate in effect on the date hereof. Each calendar year during the term of this Agreement, the Compensation Committee of the Board (the Compensation Committee ) will, in good faith, review the Executives annual base salary and may increase (but not decrease) such amount as it may deem advisable (such annual rate of salary, as the same may be increased, the Base Salary ). The Base Salary will be payable to the Executive in substantially equal installments in accordance with the Companys normal payroll practices.
(c) During each fiscal year of the Company, the Executive will be eligible for a target cash bonus based on a percentage of his then-current Base Salary to be designated by the Compensation Committee. The Executives entitlement to such cash bonus, if any, will be determined by the Compensation Committee based on the terms of the executive bonus program then in effect, including the Compensation Committees good faith determination as to whether pre-determined performance targets of the Company have been achieved following a review of the Companys year-end financial statements. All such performance targets will be determined by the Compensation Committee after consulting with Executive.
6. Long-Term Incentive Awards . The Executive shall participate in any long-term incentive awards offered to senior executives of the Company, as determined by the Compensation Committee.
7. Vacation, Holidays and Sick Leave; Life Insurance . During the Term, the Executive will be entitled to paid vacation in accordance with the Companys standard vacation accrual policies for its senior executive officers as may be in effect from time to time; provided , that the Executive will during each Contract Year be entitled to at least four (4) weeks of such vacation. During the Term, the Executive will also be entitled to participate in all applicable Company employee benefits plans as may be in effect from time to time for the Companys senior executive officers.
8. Business Expenses . The Executive will be reimbursed for all reasonable business expenses incurred by him in connection with his employment following timely submission by the Executive of receipts and other documentation in accordance with the Companys normal expense reimbursement policies.
9. Termination of Agreement . The Executives employment by the Company pursuant to this Agreement will not be terminated before the end of the Term hereof, except as set forth in this Section 9 .
(a) By Mutual Consent . The Executives employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive.
(b) Death . The Executives employment pursuant to this Agreement will be terminated upon the death of the Executive, in which event the Executives spouse or heirs will receive, (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination (as defined in Section 9(i) hereof), (ii) any other unpaid benefits (including death benefits) to which they are entitled under any plan, policy or program of the Company applicable to the
2
Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements) and (iii) the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid. The amounts referred to in clauses (i) and (iii) will be paid to the Executives spouse or heirs in a lump sum no later than thirty (30) days following the date of the Executives death, with the date of such payment within such period determined by the Company in its sole discretion.
(c) Disability . The Executives employment pursuant to this Agreement may be terminated by delivery of written notice to the Executive by the Company (a Notice of Termination ) in the event that the Executive is unable, as determined by the independent members of the Board of Directors (or any committee of the Board comprised solely of independent directors), to perform the essential functions of his regular duties and responsibilities, with or without reasonable accommodation, due to a medically determinable physical or mental illness that has lasted (or can reasonably be expected to last) for a period of ninety (90) consecutive days, or for a total of ninety (90) days or more in any consecutive one hundred and eighty (180) day-period. If the Executives employment is terminated pursuant to this Section 9(c) , the Executive will be entitled to receive (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (ii) any other unpaid benefits (including disability benefits) to which he is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements), (iii) the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid, and (iv) health insurance benefits substantially commensurate with the Companys standard health insurance benefits for the Executive and the Executives spouse and dependents through the second anniversary of the Date of Termination; provided, however, that such continued benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis); provided further, that any continued health insurance benefits which are provided under this Agreement (including benefits under Section 9(m)) shall run concurrently with any continuation coverage that the Executive or the Executives spouse and dependents are entitled to under COBRA and any rights (including the length of coverage) that the Executive and the Executives spouse and dependents may be entitled to under COBRA shall not be increased (or extended) due to any continued health insurance benefits which may be provided to the Executive and the Executives spouse or dependents pursuant to this Agreement. The amounts referred to in clauses (i) and (iii) will be paid to the Executives no later than thirty (30) days following the date of the Executives Date of Termination, with the date of such payment within such period determined by the Company in its sole discretion.
(d) By the Company for Cause . The Executives employment pursuant to this Agreement may be terminated by delivery of a Notice of Termination upon the occurrence of any of the following events (each of which will constitute Cause for termination): (i) conviction of a felony or of a crime involving misappropriation or embezzlement; (ii) willful and material wrongdoing by the Executive, including, but not limited to, acts of dishonesty or fraud, which have a material adverse effect on the Company or any of its subsidiaries; (iii) repeated material failure of the Executive to follow the direction of the Company and its Board of Directors regarding the material duties of employment; or (iv) material breach by the Executive of a material obligation under this Agreement. In order for the Company to be entitled to terminate the Executive for Cause under this Section 9(d) the following conditions must be met: (A) the Company shall provide written notice to the Executive of the existence of a condition described in clauses (i), (ii), (iii) or (iv) above within 90 days of the initial existence of such condition (which written notice shall specifically identify the manner in which the Company believes the Executive has triggered one of the conditions); (B) the Executive shall be entitled to remedy the condition within 30 days of receiving such notice; and (C) the Executive shall have failed to remedy the condition during such
3
period. If the Executives employment is terminated pursuant to this Section 9(d) , the Executive will be entitled to receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination (such amounts shall be paid within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion), any other unpaid benefits to which he is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (including, without limitation, the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid, with such benefits to be paid in accordance with the applicable provisions of the applicable arrangement) and no more.
(e) By the Company Without Cause . The Executives employment pursuant to this Agreement may be terminated by the Company at any time without Cause by delivery of a Notice of Termination. If the Executives employment is terminated pursuant to this Section 9(e) , the Executive will be entitled to receive (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (ii) the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid, (iii) an amount equal to two hundred ninety-nine percent (299%) of the Executives Base Salary, (iv) an amount equal to two hundred ninety-nine percent (299%) of the Executives average cash bonus paid (or earned, but not yet paid, for the fiscal year immediately preceding the fiscal year in which the Date of Termination occurs) to Executive in respect of the three most recent fiscal years immediately preceding the fiscal year in which the Executives employment terminates hereunder, or, if greater than such average, the bonus paid (or earned, but not yet paid) for the fiscal year immediately preceding the fiscal year in which the Date of Termination occurs (such average or greater amount, the Adjusted Bonus Amount ), (v) health insurance benefits substantially commensurate with the Companys standard health insurance benefits for the Executive and the Executives spouse and dependents through the second anniversary of the Date of Termination; provided , however , that such continued benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis); provided further, that any continued health insurance benefits which are provided under this Agreement (including benefits under Section 9(m)) shall run concurrently with any continuation coverage that the Executive or the Executives spouse and dependents are entitled to under COBRA and any rights (including the length of coverage) that the Executive and the Executives spouse and dependents may be entitled to under COBRA shall not be increased (or extended) due to any continued health insurance benefits which may be provided to the Executive and the Executives spouse or dependents pursuant to this Agreement ; and (vi) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements). The amounts referred to in clauses (i) through (iv) above will be paid to the Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion. As a condition to receiving such payment, the Executive agrees to execute, deliver and not revoke a general release in the form attached as Exhibit A .
(f) By the Executive for Good Reason . The Executives employment pursuant to this Agreement may be terminated by the Executive by written notice of his resignation ( Notice of Resignation ) delivered to the Company within two (2) years of any of the following (each of which will constitute Good Reason for resignation): (i) a material reduction by the Company in the Executives title or position, or a material reduction by the Company in the Executives authority, duties or responsibilities (including, without limitation, Executive no longer serving on the Companys board of directors), or the assignment by the Company to the Executive of any duties or responsibilities that are materially inconsistent with such title, position, authority, duties or responsibilities; (ii) a material
4
reduction in Base Salary; (iii) any material breach of this Agreement by the Company; or (iv) the Companys requiring the Executive to relocate his office location more than fifty (50) miles from Nashville, Tennessee. For avoidance of doubt, Good Reason will exclude the death or Disability of the Executive. In order for the Executive to be entitled to resign for Good Reason under this Section 9(f) the following conditions must be met: (A) the Executive shall notify the Company of the existence of a condition described in (i), (ii), or (iii) within 90 days of the initial existence of the condition; (B) the Company shall be entitled to remedy the condition within 30 days of receiving such notice; and (C) the Company shall have failed to remedy the condition during such time period. If the Executive resigns for Good Reason pursuant to this Section 9(f) , the Executive will be entitled to receive (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (ii) the amount of any cash bonus related to any Contract Year ending before the Date of Termination that has been earned but remains unpaid, (iii) an amount equal to two hundred ninety-nine percent (299%) of the Executives Base Salary, (iv) an amount equal to two ninety-nine hundred percent (299%) of the Adjusted Bonus Amount, (v) health insurance benefits substantially commensurate with the Companys standard health insurance benefits for the Executive and the Executives spouse and dependents through the second anniversary of the Date of Termination; provided , however , that such continued benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis); provided further, that any continued health insurance benefits which are provided under this Agreement (including benefits under Section 9(m)) shall run concurrently with any continuation coverage that the Executive or the Executives spouse and dependents are entitled to under COBRA and any rights (including the length of coverage) that the Executive and the Executives spouse and dependents may be entitled to under COBRA shall not be increased (or extended) due to any continued health insurance benefits which may be provided to the Executive and the Executives spouse or dependents pursuant to this Agreement, and (vi) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements). The amounts referred to in clauses (i) through (iv) above will be paid to the Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion. As a condition to receiving such payment, the Executive agrees to execute, deliver and not revoke a general release in the form attached as Exhibit A .
(g) By the Executive Without Good Reason . The Executives employment pursuant to this Agreement may be terminated by the Executive at any time by delivery of a Notice of Resignation to the Company. If the Executives employment is terminated pursuant to this Section 9(g) , the Executive will receive all Base Salary and benefits (including any earned but unpaid cash bonus) to be paid or provided to the Executive under this Agreement through the Date of Termination (such amounts shall be paid within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion), any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (including, without limitation, the amount of any cash bonus related to any year ending before the Date of Termination which has been earned but remains unpaid, with such benefits to be paid in accordance with the applicable provisions of the applicable arrangement) and no more.
(h) Following a Change in Control . If, within thirty-six (36) months following a Change in Control, the Executive (i) is terminated without Cause, or (ii) resigns for Good Reason (as defined and qualified in Section 9(f) above), then the Executive will be entitled to receive (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (ii) the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid, (iii) an amount equal to two hundred ninety-nine percent (299% )
5
of the Adjusted Bonus Amount, (iv) an amount equal to two hundred ninety-nine percent (299%) of the Executives Base Salary, (v) notwithstanding anything to the contrary in any equity incentive plan or agreement, all equity incentive awards which are then outstanding, to the extent not then vested, shall vest, (vi) health insurance benefits substantially commensurate with the Companys standard health insurance benefits for the Executive and the Executives spouse and dependents through the third anniversary of the Date of Termination; provided , however , that such continued benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis); provided further, that any continued health insurance benefits which are provided under this Agreement (including benefits under Section 9(m)) shall run concurrently with any continuation coverage that the Executive or the Executives spouse and dependents are entitled to under COBRA and any rights (including the length of coverage) that the Executive and the Executives spouse and dependents may be entitled to under COBRA shall not be increased (or extended) due to any continued health insurance benefits which may be provided to the Executive and the Executives spouse or dependents pursuant to this Agreement, and (vii) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements). The amounts referred to in clauses (i) through (iv) above will collectively be referred to as the Change in Control Severance Amount . The Change in Control Severance Amount will be paid to the Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion. The Executive agrees to execute, deliver and not revoke a general release in the form attached as Exhibit A . Payments pursuant to this Section 9(h) will be made in lieu of, and not in addition to, any payment pursuant to any other paragraph of this Section 9 .
(i) Date of Termination . The Executives Date of Termination will be (i) if the Executives employment is terminated pursuant to Section 9(b) , the date of his death, (ii) if the Executives employment is terminated pursuant to Section 9(c) , Section 9(d) or Section 9(e) , the date on which a Notice of Termination is given, (iii) if the Executives employment is terminated pursuant to Section 9(f) , the date specified in the Notice of Resignation, (iv) if the Executives employment is terminated pursuant to Section 9(g) , the date specified in the Notice of Resignation ( provided that the Executive will deliver such Notice of Resignation to the Company not less than thirty (30) days before the Date of Termination specified therein), or (v) if the Executives employment is terminated pursuant to Section 9(h) , the date specified in the Notice of Termination or the Notice of Resignation, as applicable.
(j) For the purposes of this Agreement, a Change in Control will mean any of the following events:
(i) any person or entity, including a group as defined in Section 13(d)(3) of the Exchange Act, other than the Company or a wholly-owned subsidiary thereof or any employee benefit plan of the Company or any of its subsidiaries, becomes the beneficial owner of the Companys securities having 35% or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business); or
(ii) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sales of all or substantially all assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of the Company or any successor company or entity entitled to vote generally in the election of the directors of the Company or a successor company or entity after such transaction are held in the aggregate by the holders of the Companys securities entitled to vote generally in the election of directors of the Company immediately prior to such transaction; or
6
(iii) during any period of two consecutive years, individuals who at the beginning of any such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Companys shareholders, of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the Subject Person ) acquired beneficial ownership of more than the permitted amount of the outstanding voting securities as a result of the acquisition of voting securities by the Company which, by reducing the number of voting securities outstanding, increased the proportional number of shares beneficially owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the beneficial owner of any additional voting securities, then a Change in Control shall occur.
(k) Delay of Payment Required by Section 409A of the Code . It is intended that (i) each payment or installment of payments provided under this Agreement will be a separate payment for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the Code ) and (ii) that the payments will satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code, including those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term deferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two-year exception), and 1.409A-1(b)(9)(v) (regarding reimbursements and other separation pay). Notwithstanding anything to the contrary in this Agreement, if the Company determines (i) that on the date the Executives employment with the Company terminates or at such other time that the Company determines to be relevant, the Executive is a specified employee (as such term is defined under Treasury Regulation 1.409A-1(i)) of the Company and (ii) that any payments to be provided to the Executive pursuant to this Agreement are or may become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code if provided at the time otherwise required under this Agreement, then such payments will be delayed until the date that is six (6) months after the date of the Executives separation from service (as such term is defined under Treasury Regulation 1.409A-1(h)) with the Company. Any payments delayed pursuant to this Section 9(k) will be made in a lump sum on the first day of the seventh month following the Executives separation from service (as such term is defined under Treasury Regulation 1.409A-1(h)) and any remaining payments, if applicable, required to be made under this Agreement will be paid upon the schedule otherwise applicable to such payments under the Agreement. In addition, to the extent that any reimbursement, fringe benefit or other, similar plan or arrangement in which the Executive participates during the term of Executives employment under this Agreement or thereafter provides for a deferral of compensation within the meaning of Section 409A of the Code, (i) the amount eligible for reimbursement or payment under such plan or arrangement in one calendar year may not affect the amount eligible for reimbursement or payment in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid), and (ii) subject to any shorter time periods provided herein or the applicable plans or arrangements, any reimbursement or payment of an expense under such plan or arrangement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred.
(l) Other Agreements . This Agreement does not replace or supersede the Executives Severance Benefit Agreement or Salary Continuation Agreement with the Company.
7
Amounts to be received under this Agreement shall be reduced by the amounts of any payments actually made under the Severance Benefit Agreement. No reduction of amounts to be paid hereunder shall be made with respect to amounts of any payments made under the Salary Continuation Agreement.
(m) Insurance . In the event of termination under subsections 9(a) , (c) , (e) , (f) , (g) , or (h) , where the Executive does not obtain substantially similar health insurance coverage from a subsequent employer as set forth in such subsections, after the period for the provision of required health insurance coverage by the Company at its cost under such subsections, the Company shall, while Executive is living, use its commercially reasonable efforts to make available to the Executive health insurance benefits for the Executive and his spouse and dependents under the Companys then-existing health insurance plan, at the Executives expense and at no additional cost to the Company; provided that if any person covered under this Section 9(m) is eligible for coverage under Medicare or any similar federal health benefits program, to the extent permitted by applicable law and not specifically contrary to the Companys health insurance plan, such Medicare coverage shall be primary.
10. Representations .
(a) The Company represents and warrants that this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms.
(b) The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement.
11. Assignment; Binding Agreement . This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement will inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, will be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or, if there is no such designee, to his estate.
12. Confidentiality; Non-Solicitation; Non-Competition .
(a) Non-Solicitation . The Executive agrees that for a period of one (1) year after the Date of Termination if the Executive receives a payment under Section 9(e) , Section 9(f) or Section 9(h) , the Executive will not directly or indirectly solicit, on his own behalf or on behalf of any other person or entity, the services of any person who is an executive officer of the Company or solicit any of the Companys executive officers to terminate their employment or agency with the Company, except with the Companys express written consent.
(b) Non-competition. So long as Executive remains employed by the Company, Executive shall not compete, directly or indirectly, with the Company. For a period of twelve (12) months following termination of Executives employment with the Company (the Non-compete Period ) if the Executive receives a payment under Section 9(e) , Section 9(f) or Section 9(h) , the Executive shall not enter into or engage in any business that consists of a casual dining restaurant concept whose menu is substantially similar to the Companys menu in a geographic market where the Company operates a restaurant at the time of the termination of the Executive (the Company Business ). For the purposes of
8
this subsection (b) , Executive understands that he shall be competing if he engages in any or all of the activities set forth herein directly as an individual on his own account, or indirectly as a partner, joint venturer, employee, agent, consultant, officer and/or director of any firm, association, corporation, or other entity, or as a stockholder of any corporation in which Executive owns, directly or indirectly, individually or in the aggregate, more than one percent (1%) of the outstanding stock; provided , however , that at such time as he is no longer employed by the Company, Executives direct or indirect ownership as a stockholder of less than five percent (5%) of the outstanding stock of any publicly traded corporation shall not by itself constitute a violation of this subsection (b) .
(c) The parties intend that each of the covenants contained in this Section 12 will be construed as a series of separate covenants relating to jurisdictions in which the Company may have a restaurant, one for each state of the United States, each county of each state of the United States. Except for geographic coverage, each such separate covenant will be deemed identical in terms to the covenant contained in the preceding subsections of this Section 12 . If, in any judicial proceeding, a court will refuse to enforce any of the separate covenants (or any part thereof) deemed included in those subsections, then such unenforceable covenant (or such part) will be deemed eliminated from this Agreement for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. In the event that the provisions of this Section 12 should ever be deemed to exceed the time or geographic limitations, or the scope of this covenant is ever deemed to exceed that which is permitted by applicable law, then such provisions will be reformed to the maximum time, geographic limitations or scope, as the case may be, permitted by applicable law. The unenforceability of any covenant in this Section 12 will not preclude the enforcement of any other of said covenants or provisions of any other obligation of the Executive or the Company hereunder, and the existence of any claim or cause of action by the Executive or the Company against the other, whether predicated on the Agreement or otherwise, will not constitute a defense to the enforcement by the Company of any of said covenants.
(d) If the Executive will be in violation of any provision of this Section 12 , then each time limitation set forth in this Section 12 will be extended for a period of time equal to the period of time during which such violation or violations occur. If the Company seeks injunctive relief from such violation in any court, then the covenants in this Section 12 will be extended for a period of time equal to the pendency of such proceedings, including all appeals by the Executive.
13. Confidentiality .
(a) During the Term and at any time thereafter, Executive shall not disclose, furnish, disseminate, make available or, except in the ordinary course of performing his duties on behalf of the Company, use any trade secrets or confidential business and technical information of the Company, or its parent, subsidiaries or affiliated entities without limitation as to when it was acquired by Executive or whether it was compiled or obtained by, or furnished to Executive while he was employed by the Company. Such trade secrets and confidential business and technical information are considered to include, without limitation, development plans, financial statistics, research data, or any other statistics and plans contained in monthly and annual review books, profit plans, capital plans, critical issues plans, strategic plans, or marketing, real estate, or restaurant operations plans. Executive specifically acknowledges that all such information, whether reduced to writing or maintained in Executives mind or memory and whether compiled by the Company and/or Executive derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been put forth by the Company to maintain the secrecy of such information, that such information is and shall remain the sole property of the Company and that any retention and use of such information during or after the termination of Executives relationship with the Company (except in the course of Executives performance of his duties) shall constitute a misappropriation of the Companys trade secrets.
9
(b) The above restrictions on disclosure and use of confidential information shall not prevent Executive from: (i) using or disclosing information in the good faith performance of his duties on behalf of the Company; (ii) using or disclosing information to another employee to whom disclosure is required to perform in good faith the duties of either person on behalf of the Company; (iii) using or disclosing information to another person or entity bound by a duty or an agreement of confidentiality as part of the performance in good faith of Executives duties on behalf of the Company or as authorized in writing by the Company; (iv) at any time after the period of Executives employment using or disclosing information to the extent such information is, through no fault or disclosure of Executive, generally known to the public; (v) using or disclosing information which was not disclosed to Executive by the Company or otherwise during the period of Executives employment which is then disclosed to Executive after termination of Executives employment with the Company by a third party who is under no duty or obligation not to disclose such information; or (vi) disclosing information as required by law. If Executive becomes legally compelled to disclose any of the confidential information, Executive shall (i) provide the Company with reasonable prior written notice of the need for such disclosure such that the Company may obtain a protective order; (ii) if disclosure is required, furnish only that portion of the confidential information which, in the written opinion of Executives counsel delivered to the Company, is legally required; and (iii) exercise reasonable efforts to obtain reliable assurances that confidential treatment shall be accorded to the confidential information.
14. Company Remedies . The Executive acknowledges and agrees that the restrictions and covenants contained in this Agreement are reasonable and necessary to protect the legitimate interests of the Company and that the services to be rendered by him hereunder are of a special, unique and extraordinary character. To that end, in the event of any breach by the Executive of Section 12 or Section 13 hereof, the Executive agrees that the Company would be entitled to injunctive relief, which entails that (i) it would be difficult to replace the Executives services; (ii) the Company would suffer irreparable harm that would not be adequately compensated by monetary damages and (iii) the remedy at law for any breach of any of the provisions of Section 12 or Section 13 may be inadequate. The Executive further acknowledges that legal counsel of his choosing has reviewed this Agreement, that the Executive has consulted with such counsel, and that he agrees to the terms herein without reservation. Accordingly, the Executive specifically agrees that the Company will be entitled, in addition to any remedy at law or in equity, to (i) retain any and all payments not yet paid to him under this Agreement in the event of any breach by him of his covenants under Sections 12 and 13 hereunder, (ii) in the event of such breach, recover an amount equal to the after-tax payments previously made to the Executive under Section 9(e)(iii) , 9(e)(iv) , 9(f)(iii) , 9(f)(iv) , or 9(h)(iii) , 9(h)(iv) , and (iii) obtain preliminary and permanent injunctive relief and specific performance for any actual or threatened violation of Section 12 or Section 13 of this Agreement. This provision with respect to injunctive relief will not, however, diminish the right to claim and recover damages, or to seek and obtain any other relief available to it at law or in equity, in addition to injunctive relief.
15. Certain Additional Payments by the Company .
(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, if it will be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 15 ) (a Payment ) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the Excise Tax ),
10
then the Executive will be entitled to receive an additional payment (a Gross-Up Payment ) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, and taking account of any withholding obligation on the part of the Company, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 15(c) , all determinations required to be made under this Section 15 , including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be used in arriving at such determination, will be made by the Companys regular certified public accounting firm (the Accounting Firm ), which will provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. If the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the applicable Change in Control, the Company will appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm will then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm will be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 15 , will be paid by the Company to the Executive, net of any of the Companys federal or state withholding obligations with respect to such Payment, within five (5) days of the receipt of the Accounting Firms determination. Any determination by the Accounting Firm will be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made ( Underpayment ), consistent with the calculations required to be made hereunder. If the Company exhausts its remedies pursuant to Section 15(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm will determine the amount of the Underpayment that has occurred and any such Underpayment will be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive will notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment (or an additional Gross-Up Payment). Such notification will be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and will apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive will not pay such claim before the expiration of the thirty-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing before the expiration of such period that it desires to contest such claim, the Executive will:
(i) give the Company any information reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim as the Company will reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such claim; provided , however , that the Company will bear and pay directly all costs and expenses (including
11
additional interest and penalties) incurred in connection with such contest and will indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provisions of this Section 15(c) , the Company will control all proceedings taken in connection with such contest (to the extent applicable to the Excise Tax and the Gross-Up Payment) and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company will determine; provided , however , that if the Company directs the Executive to pay such claim and sue for a refund, the Company will advance the amount of such payment to the Executive, on an interest-free basis and will indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided , further , that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Companys control of the contest will be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive will be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 15(c) , the Executive becomes entitled to receive any refund with respect to such claim, the Executive will (subject to the Companys complying with the requirements of Section 15(c) ) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 15(c) , a determination is made that the Executive will not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund before the expiration of thirty (30) days after such determination, then such advance will be forgiven and will not be required to be repaid and the amount of such advance will offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
(e) Notwithstanding any other provision of this Section 15 , any Gross-Up Payment or Underpayment due to the Executive hereunder will be paid in accordance with this Section 15 , but in no event may any such payments be made later than December 31 of the year following the year (i) any excise tax is paid to the Internal Revenue Service regarding this Section 15 or (ii) any tax audit or litigation brought by the Internal Revenue Service or other relevant taxing authority related to this Section 15 is completed or resolved.
16. Entire Agreement . This Agreement and the equity incentive and benefit plans and agreements referenced herein contain all the understandings between the parties hereto pertaining to the matters referred to herein, and supersede any other undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. To the extent that any term or provision of any other document or agreement executed by the Executive with or for the Company during the Term of this Agreement conflicts or is inconsistent with this Agreement, the terms and conditions of this Agreement shall prevail and supersede such inconsistent or conflicting term or provision.
17. Amendment, Modification or Waiver . No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by
12
another party hereto of any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.
18. Notices . Any notice to be given hereunder will be in writing and will be deemed given when delivered personally, sent by courier or facsimile or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice hereunder in writing:
Any notice delivered personally or by courier under this Section 18 will be deemed given on the date delivered and any notice sent by facsimile or registered or certified mail, postage prepaid, return receipt requested, will be deemed given on the date transmitted by facsimile or five days after post-marked if sent by U.S. mail.
19. Severability . If any provision of this Agreement or the application of any such provision to any party or circumstances will be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, will not be affected thereby, and each provision hereof will be validated and will be enforced to the fullest extent permitted by law.
20. Governing Law . This Agreement will be governed by and construed under the internal laws of the State of Tennessee, without regard to its conflict of laws principles.
21. Jurisdiction and Venue . This Agreement will be deemed performable by all parties in, and venue will exclusively be in the state or federal courts located in the State of Tennessee. The Executive and the Company hereby consent to the personal jurisdiction of these courts and waive any objections that such venue is objectionable or improper.
13
22. Headings . All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.
23. Withholding . All payments to the Executive under this Agreement will be reduced by all applicable withholding required by federal, state or local law.
24. Counterparts . This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
25. Expenses Incurred in Enforcing this Agreement . The Executive shall be entitled to reimbursement of costs and expenses (including reasonable attorneys fees) incurred by the Executive or his heirs or executors in connection with any claim or proceeding to enforce this Agreement by Executive.
26. Tax Matters . By accepting this Agreement, Executive hereby agrees and acknowledges that neither the Company nor its subsidiaries make any representations with respect to the application of Section 409A of the Code to any tax, economic or legal consequences of any payments payable to the Executive hereunder (including, without limitation, payments pursuant to Section 9 above). Further, by the acceptance of this Agreement, the Executive acknowledges that (i) Executive has obtained independent tax advice regarding the application of Section 409A of the Code to the payments due to the Executive hereunder, (ii) Executive retains full responsibility for the potential application of Section 409A of the Code to the tax and legal consequences of payments payable to the Executive hereunder and (iii) the Company shall not indemnify or otherwise compensate the Executive for any violation of Section 409A of the Code that may occur in connection with this Agreement (including, without limitation, payments pursuant to Section 9 above). The parties agree to cooperate in good faith to amend such documents and to take such actions as may be necessary or appropriate to comply with Code Section 409A.
[Signature Page Follows]
14
IN WITNESS WHEREOF , the parties hereto have executed this Employment Agreement effective as of date set forth above.
J. ALEXANDERS CORPORATION
By: /s/ R. Gregory Lewis
Name: R. Gregory Lewis
Title: Chief Financial Officer, Vice-
President, Finance
EXECUTIVE
/s/ Lonnie J. Stout II
Lonnie J. Stout II
15
Exhibit 10.13
AMENDED AND RESTATED SALARY CONTINUATION AGREEMENT
This Amended and Restated Salary Continuation Agreement (Agreement), which supersedes and cancels any previously dated Salary Continuation Agreements, is made and entered into as of this 26th day of December, 2008, by and between J. Alexanders Corporation, a Tennessee corporation with its principal office in Nashville, Tennessee (the Corporation), and Lonnie J. Stout II, a resident of Brentwood, Tennessee (Employee).
For and in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
1. Recitals . The Corporation values the efforts, abilities and accomplishments of Employee in the performance of his duties as an employee of the Corporation, and the Corporation recognizes the importance of Employee as a member of the management of the Corporation. In order to induce the continued employment with the Corporation of Employee, Corporation is willing to provide the benefits contained in this Agreement, and Employee accepts these benefits as a material part of his employment with the Corporation.
2. Definitions .
a. Base Salary for purposes of calculating a benefit hereunder as of a specific date shall be the greater of (i) the Employees actual annual base salary in effect as of that date or (ii) the average of the Employees annual base salary for the three full fiscal years immediately preceding the Separation from Service.
b. Beneficiary or Beneficiaries shall mean the person(s) designated as the Employees beneficiary or beneficiaries in an election form filed by the Employee with the Corporation, or in the absence of such designation, the Employees Beneficiary shall be deemed to be the Employees estate.
c. Change in Control shall mean a change in control of the Corporation as defined in Section 2(g) of the J. Alexanders Corporation Amended and Restated 2004 Equity Incentive Plan.
d. Code shall mean the Internal Revenue Code of 1986, as amended from time to time. References to any section of the Internal Revenue Code shall include any successor provision thereto.
e. Conversion Interest Rate shall mean seven percent (7%).
f. Employees Early Retirement Date shall mean the date of the Employees Separation from Service before attaining his Normal Retirement Age, for reasons other than death.
g. Employees Normal Retirement Date shall mean the date of the Employees Separation from Service on or after the Employee attaining his Normal Retirement Age.
h. ERISA shall mean the Employee Retirement Income Security Act of 1974.
i. Normal Retirement Age shall mean the date the Employee attains age 65.
j. Qualified Change in Control shall mean a change in the ownership or effective control of the Corporation, or a change in the ownership of a substantial portion of the assets of the Corporation as defined in Treasury Regulation 1.409A-3(i)(5).
k. Separation from Service shall mean a separation from service as defined in Treasury Regulation 1.409A-1(h). Pursuant to Treasury Regulation 1.409A-1(h), a Separation from Service shall occur on the date the Corporation and the Employee reasonably anticipate that no further services will be performed after a certain date or that the level of bona fide services the Employee will perform after such date (whether as an Employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the Corporation if the Employee has been providing services to the Corporation for less than thirty-six (36) months).
l. Treasury Regulations(s) shall mean the regulations promulgated by the Treasury Department under the Code.
Other terms may be defined in sections of this Agreement where such terms are used.
3. Normal Retirement Benefit . In the event of the Employees Separation from Service from the Corporation for any reason other than death on or after the date on which the Employee attains his Normal Retirement Age, then the Corporation shall pay to Employee an annual benefit equal to fifty percent (50%) of the Employees Base Salary as of the Employees Normal Retirement Date (the Normal Retirement Benefit). The Normal Retirement Benefit shall be payable to the Employee in equal monthly installments, for a period of fifteen (15) years (one-hundred eighty (180) payments) (the Normal Retirement Benefit Payment Period). The Normal Retirement Benefit shall commence within thirty (30) days of the Employees Normal Retirement Date (with the date of the initial payment within such period determined by the Corporation in its sole discretion) and shall continue until the expiration of the Normal Retirement Benefit Payment Period.
4. Termination of Employment Prior to Normal Retirement Age . In the event of the Employees Separation from Service before the Employees Normal Retirement Age for reasons other than death, the Corporation shall pay to the Employee a benefit (the Vested Benefit), as follows. Where such Separation from Service occurs prior to the close of business on December 26, 2008, the Vested Benefit shall be a lump sum equal to the amount on Exhibit A applicable to 2008, which shall be paid within thirty (30) days of the Employees Early Retirement Date, with the date of such payment within such period determined by the Corporation in its sole discretion. For each day beginning at the close of business on December 26, 2008 until and including the
2
close of business on December 31, 2008, the Vested Benefit payable in a lump sum shall increase by one-sixth of the difference between the computed Vested Benefit applicable on January 1, 2009 (applying the Conversion Interest Rate as a discount rate and calculating the present value thereof) and the amount on Exhibit A applicable to 2008, and the resulting lump sum with respect to Separation from Service as of such times shall be paid within thirty (30) days of the Employees Early Retirement Date, with the date of such payment within such period determined by the Corporation in its sole discretion. Where such Separation from Service occurs on or after January 1, 2009, the Vested Benefit shall be an annual benefit equal to fifty percent (50%) of the Employees Base Salary as of the Employees Early Retirement Date paid in equal monthly installments for a period of fifteen (15) years (one-hundred eighty (180) payments) commencing on the date the Employee attains his Normal Retirement Age; notwithstanding the foregoing, if the present value (using the Conversion Interest Rate as a discount rate) of the aggregate amount payable under this sentence as of the Employees Separation from Service is less than the designated dollar amount on attached Exhibit A as the vested amount that would apply on the relevant date of termination (the Minimum Lump Sum), then the Employee shall instead receive a Vested Benefit paid in equal monthly installments for a period of fifteen (15) years (one-hundred eighty (180) payments) commencing on the date the Employee attains his Normal Retirement Age, with the monthly payment amount as an annuity payable for the period based on the Minimum Lump Sum and the Conversion Interest Rate.
5. Death Benefit .
a. Death Prior to the Employees Normal Retirement Age . If Employee dies while employed by the Corporation prior to attaining his Normal Retirement Age, the Corporation shall pay a salary continuation benefit, as set forth below, for a period ending on the date on which the Employee would have attained his Normal Retirement Age or ten years (one-hundred twenty (120) payments) from the date of the Employees death, whichever is longer (the Death Benefit Payment Period). Such benefits shall (i) be payable in equal monthly installments to the Employees Beneficiary; (ii) commence within thirty (30) days of the Employees death (with the date of the initial payment within such period determined by the Corporation in its sole discretion) and (iii) shall continue until the expiration of the Death Benefit Payment Period. The annual salary continuation benefit for the first full year following the death of Employee shall be one-hundred percent (100%) of the Employees Base Salary in effect hereunder as of the Employees death. Thereafter, for the remainder of the Death Benefit Payment Period, the annual salary continuation benefit shall be fifty percent (50%) of the Employees Base Salary in effect hereunder as of the Employees death.
b. Death after Normal Retirement Age, but prior to the Employees Normal Retirement Date . If the Employee dies after attaining his Normal Retirement Age, but prior to the Employees Normal Retirement Date, the Employees Beneficiary shall receive the Employees Normal Retirement Benefit calculated as if the Employee had experienced a Separation from Service as of his date of death. Such benefits shall commence within thirty (30) days of the Employees death (with the date of the initial payment within such period determined by the Corporation in its sole discretion) and shall continue for the Normal Retirement Payment Period.
3
c. Death after the Commencement of Benefits . If the Employee dies after his benefit payments have commenced in installments under the applicable Section of this Agreement, the installment payments shall continue to be paid to the Employees Beneficiary in the same manner and at the same times as they would have been paid to the Employee had he survived.
6. Delay of Payments Pursuant to Section 409A of the Code . Notwithstanding anything to the contrary in this Agreement, if (i) the Employee is a specified employee (as such term is defined under Treasury Regulation 1.409A-1(i)) of the Corporation on the date of the Employees Separation from Service and (ii) in connection with such Separation From Service any payments to be provided to the Employee pursuant to this Agreement are or may become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code if provided at the time otherwise required under this Agreement, then such payments shall be delayed until the date that is six (6) months after the date of the Employees Separation from Service from the Corporation, or, if earlier, the date of the Employees death. Any payments delayed pursuant to this Section 6 shall be made in a lump sum on the first day of the seventh month following the Employees Separation from Service or, if earlier, the date of the Employees death, and any remaining payments, if applicable, required to be made under this Agreement will be paid upon the schedule otherwise applicable to such payments under the Agreement.
7. Funding upon a Change in Control . Upon a Change in Control, the Corporation shall establish a rabbi trust in accordance with Revenue Procedure 92-64 and subsequent guidance published by the Internal Revenue Service (the Trust) and shall contribute an amount sufficient based on projected benefits to fund the Employees Normal Retirement Benefit. The amount of any such contribution shall include any investment vehicles (such as Corporation-owned insurance contracts on the life of the Employee) previously established by the Corporation in connection with the proposed funding of benefits. Further, the Corporation shall have an ongoing obligation to continue to make contributions to the rabbi trust in an amount sufficient to fund the Employees Normal Retirement Benefit until the Employee receives the full amount of the benefit he is entitled to receive under the Agreement. The calculation of the funding of the Employees Normal Retirement Benefit shall be determined by an actuary or accountant chosen by the Corporation and such calculation must be completed prior to the closing of any such Change in Control. The calculation shall thereafter be performed no less often than annually in order to calculate whether additional contributions are necessary. The actuary or accountant chosen by the Corporation shall utilize the following principal assumptions when determining the funding required by this Section 7 at the time any calculation is performed: (i) an interest rate equal to the Conversion Interest Rate; (ii) a turnover rate of zero; (iii) an assumption that the Employee will remain employed until his Normal Retirement Date; and (iv) a four and one-half percent (4.5%) annual increase in Base Salary above the Base Salary used to calculate benefits hereunder at the time any calculation is performed. The Corporation may not remove funds which have previously been contributed to the Trust at any time, except to the extent necessary to pay the benefits due under this Agreement. Notwithstanding the foregoing, the assets of the Trust shall at all times remain subject to the claims of general
4
creditors of the Corporation in the event of its insolvency as more fully described in the Trust. Notwithstanding the fact that a Trust shall be established under this Section 7 upon a Change in Control, the Corporation shall remain liable for paying the benefits under this Agreement. However, any payment of benefits to the Employee or his Beneficiary made by such Trust shall satisfy the Corporations obligation to make such payment to such person. Upon satisfaction of the Corporations obligation to make any and all benefit payments to the Employee or his Beneficiary, such Trust shall terminate, and any remaining Trust assets shall be returned to the Corporation. The Trust may contain such other terms and conditions as the Corporation may determine to be necessary or desirable. Notwithstanding the forgoing, the Trust may not be amended or terminated (except as provided in Section 15) upon a Change in Control or thereafter, except to the extent required to ensure the Trust is in compliance with ERISA or the Code.
8. Claims Procedure . If any benefits become payable under this Agreement, the Employee or his designated beneficiary shall file a claim for benefits by notifying the Corporation orally or in writing. If the claim is wholly or partially denied, the Corporation will provide a written notice within ninety (90) days specifying the reason for the denial, the provisions of the Agreement upon which the denial is based, and any additional material or information necessary to receive benefits, if any. Also, such written notice shall indicate the steps to be taken if a review of the denial is desired. If a claim is denied and a review is desired, the Employee or his designated beneficiary shall notify the Corporation in writing within sixty (60) days. In requesting a review, the Employee or beneficiary may review this Agreement, and may submit any written issues and comments he feels are appropriate. The Corporation shall then review the claim and provide a written decision within sixty (60) days stating the specific reasons for the decision and including references to the provisions of the Agreement on which the decision is based. Notwithstanding the foregoing, the Employee shall be entitled to reimbursement of all costs and expenses (including reasonable attorneys fees) incurred by the Employee or his beneficiaries, heirs or executors in connection with any claim or proceeding to enforce this Agreement.
9. Non-Assignable Benefits . Neither the Employee nor his Beneficiary shall have any right to sell, assign, transfer or otherwise convey or encumber the right to receive any benefits hereunder.
10. Other Employment Benefits . Any payments under this Agreement shall be independent of, and in addition to, employment benefits under any other plan, program or agreement which may be in effect between the parties hereto, or any other compensation payable to the Employee or the Employees Beneficiary by the Corporation.
11. No Contract of Employment . This Agreement shall not be construed as a contract of employment, nor does it restrict the right of the Corporation to discharge the Employee or the right of the Employee to terminate his employment.
12. Benefits Not Funded . Subject to Section 7 of this Agreement, the Corporation shall be under no obligation whatsoever to purchase or maintain any contract, policy or other asset to provide the benefits under this Agreement. Further, any contract, policy or other asset which the Corporation may utilize to assure itself of the funds to provide the benefits hereunder
5
shall not serve in any way as security to the Employee for the Corporations performance under this Agreement, and Employee shall have no right to, or claim against, such contract or policy. Employee further acknowledges that with respect to the benefits provided under this Agreement, Employees status is that of an unsecured creditor of the Corporation.
13. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee.
14. Amendment .
a. Amendment by the Corporation Prior to a Change in Control . Except as provided in Section 15(a) below, this Agreement may not be altered, amended or revoked prior to a Change in Control, except by a written agreement signed by both parties or as required to comply with ERISA or the Code.
b. Amendment by the Corporation upon or Following a Change in Control . Upon a Change in Control and thereafter, this Agreement may not be altered, amended or revoked by the Corporation under any circumstances, except as required to comply with ERISA or the Code.
15. Termination.
a. Termination by Corporation prior to a Change in Control . This Agreement may be terminated by the Corporation under one of the following conditions:
(1) The Corporation may terminate this Agreement at its sole discretion, provided that:
(i) |
All arrangements sponsored by the Corporation that would be aggregated with this Agreement under Section 1.409A-1(c)(2) of the Treasury Regulations are terminated with respect to all Employees; |
(ii) |
No payments will be made, other than those otherwise payable under the terms of this Agreement absent the Agreements termination, within twelve (12) months of the termination of the Agreement; |
(iii) |
All payments due to the Employee under this Agreement will be made within twenty-four (24) months of such termination; |
(iv) |
The Corporation does not adopt a new arrangement that would be aggregated with any terminated arrangement under Section 409A at any time within the three-year period following the date of termination of this Agreement; and |
6
(v) |
The termination does not occur proximate to a downturn in the financial health of the Corporation. |
(2) The Corporation, at its discretion, may terminate this Agreement within twelve (12) months of a corporate dissolution taxed under Section 331 of the Code, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A), provided that amounts deferred under this Agreement are included in the gross income of Employee in the latest of the following years (or, if earlier, the taxable year in which the amount is actually or constructively received):
(i) |
The calendar year in which the termination of this Agreement occurs; |
(ii) |
The first calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or |
(iii) |
The first calendar year in which the payment is administratively practicable; |
(3) The Corporation may amend this Agreement to provide that termination of the Agreement will occur under such conditions and events as may be prescribed by the Secretary of the Treasury in generally applicable guidance published in the Internal Revenue Bulletin.
If the Corporation terminates this Agreement pursuant to this Section 15(a), the Employee shall be entitled to receive a lump sum payment equal to the present value of the benefit the Employee would have received under the Agreement if he had terminated employment on the date of such termination, which present value shall be determined as of the date of payment using the Conversion Interest Rate as a discount rate. The lump sum payment shall be made in accordance with and at such time as permitted by this Section 15(a) or Section 409A of the Code.
(b) Termination by Corporation upon or Following a Change in Control . Upon a Change in Control and thereafter, this Agreement may not be terminated by the Corporation under any circumstances.
16. Guaranty. In the event of a Change in Control, the Corporation shall obtain the guaranty of the Corporations obligations under this Agreement by the acquirer and the ultimate parent entity (based on the majority of voting power and pecuniary interest in the outstanding equity) of the Corporation or its successor after such Change in Control. The failure of the Company to obtain such guaranty of this Agreement as reflected in an endorsement as guarantor of the Corporations obligations hereunder shall constitute a material breach of this agreement by the Corporation.
7
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Salary Continuation Agreement as of the day and year first above written.
J. ALEXANDERS CORPORATION |
||
By: /s/ R. Gregory Lewis Chief Financial Officer, Vice-President, Finance |
||
Employee: |
/s/ Lonnie J. Stout |
|
Lonnie J. Stout II |
8
Exhibit A
Minimum Lump Sum
Year of Termination |
Vested Amount |
|
2008 |
$1,172,895 | |
2009 |
1,295,598 | |
2010 |
1,421,970 | |
2011 |
1,552,421 | |
2012 |
1,611,879 |
A-1
Exhibit 10.14
September 13, 1989
Lonnie J. Stout II
Severance Benefits Agreement
Dear Mr. Stout:
The Board of Directors of Volunteer Capital Corporation (the Company) recognizes that your contributions to the past and future growth and success of the Company have been substantial. The Board therefore desires to assure the Company of your continued services for the benefit of the Company now, and in the event that the Company were to be faced with a takeover possibility.
In order to induce you to remain in the employ of the Company, this letter agreement (the Agreement) sets forth severance benefits which the Company will pay to you in the event of a severance of your employment, except as a result of your death, Disability, Retirement or your termination by the Company for Cause, (in each case as such capitalized terms are defined in Section 3 below), subsequent to a Change in Control of the Company (as defined in Section 2 below).
1. TERM . If a Change in Control of the Company (as defined in Section 2 below) should occur while you are still an employee of the Company, then this Agreement shall continue in effect from the date of such Change in Control of the Company for so long as you remain an employee of the Company.
2. CHANGE IN CONTROL . No benefits shall be payable hereunder unless and until there shall have been a Change in Control of the Company, as defined in this Section 2, while you are still an employee of the Company. For purposes of this Agreement, a Change in Control of the Company shall be deemed to have occurred if (i) the Company shall cease to be a publicly owned corporation having its outstanding common stock listed on a national exchange or traded in the over-the-counter market, or (ii) any other corporation, person or group (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) other than Jack c. Massey or his affiliates, is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Companys then outstanding securities; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Companys shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. Upon a Change in Control of the Company while you are still an employee of the Company, this Agreement and all of its provisions shall become operative immediately.
3. SEVERANCE FOLLOWING CHANGE IN CONTROL . If a Change in Control of the Company as defined in Section 2 above shall have occurred while you are still an employee of the Company, you shall be entitled to the benefits provided in Section 4 below upon the subsequent severance of your employment with the Company by you (but only if such severance is elected by you for Reason, as defined in subsection 3(iv) below, or by the Company, unless such severance by the Company is a result of (a) your death, (b) your Disability (as defined in subsection 3(i) below), (c) your Retirement (as defined in subsection 3(ii) below), or (d) your termination by the Company for Cause (as defined in subsection 3(iii) below), in any of which events you shall not be entitled to receive severance benefits under this Agreement.
(i) Disability . If, as a result of your incapacity due to physical or mental illness, you shall have been absent from your duties with the Company on a full time basis for 130 consecutive business days and within thirty (30) days after written notice of termination is given you shall not have returned to the full time performance of your duties, the Company may terminate this Agreement for Disability, in which event you shall not be entitled to receive severance benefits under this Agreement.
(ii) Retirement . The term Retirement, as used in this Agreement, shall mean severance by the Company or you of your employment based on your having reached age 65, which is the Companys normal retirement age. The Company may terminate this Agreement for Retirement at any time after your 65th birthday, in which event you shall not be entitled to receive severance benefits under this Agreement.
(iii) Cause . The Company may terminate your employment at any time for Cause, in which event you shall not be entitled to receive severance benefits under this Agreement. For the purposes of this Agreement, the Company shall have Cause to terminate your employment hereunder only if termination shall have been the result of an act or acts of dishonesty by you constituting a felony and resulting or intended to result directly or indirectly in substantial gain or personal enrichment at the expense of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Companys Board of Directors at a meeting of the Board called and held for the purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth in the first sentence of this subsection 3(iii) and specifying the particulars thereof in detail.
2
(iv) Reason . Following a Change in Control of the Company, you may terminate your employment at any time for Reason, in which event you shall be entitled to receive severance benefits under this Agreement. For the purposes of this Agreement, you shall have Reason to terminate your employment hereunder if there is either a change in your present responsibilities or there is a decrease in the level of your compensation or other economic loss.
(v) Notice of Termination . Any termination by the Company pursuant to subsections 3(i), 3(ii) or 3(iii) above or by you pursuant to subsection 3(iv) shall be communicated by written Notice of Termination. For purposes of this Agreement, a Notice of Termination shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without such Notice.
(vi) Date of Termination . Date of Termination shall mean (A) if the Agreement is terminated by you, the date on which you deliver Notice of Termination to the Company, (B) if this Agreement is terminated by the Company for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the performance of your duties on a full-time basis during such thirty (30) days period), or (C) if your employment is terminated by the Company for any other reason, the date on which a Notice of Termination is given; provided that if within thirty (30) days after any Notice of Termination is given to you by the Company, you notify the Company that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected).
3
(vii) Company Retains Right to Terminate You for any Reason . The Company may terminate your employment at any time, before or after any Change in Control of the Company, subject to your right to receive the severance benefits hereinafter specified if such termination occurs after a Change in Control of the Company and is for a reason other than those specified in subsections 3(i), 3(ii) and 3(iii) above.
4. COMPENSATION UPON SEVERANCE AFTER A CHANGE IN CONTROL OF THE COMPANY . This Section 4 describes your rights to receive severance compensation from the Company if there shall have occurred a Change in Control of the Company while you are still an employee of the Company, unless such severance was by the Company as a result of your death, Retirement, Disability or Cause or by you without Reason (as such capitalized terms are defined in Section 3 above):
(a) If the Company shall terminate your employment other than pursuant to subsections 3(i), 3(ii) or 3(iii) above, or if you shall resign from the Company for Reason as set forth in subsection 3(iv) above, then:
The Company shall pay to you as severance pay in a lump sum on the fifth day following the Date of Termination, an amount equal to one and one-half times your then annual salary.
(b) The Company shall pay all legal fees and expenses incurred by you in contesting or disputing any such termination, or in seeking to obtain or enforce any right or benefit provided by this Agreement in whole or in part.
(c) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer after the Date of Termination, or otherwise.
5. SUCCESSORS; BINDING AGREEMENT . (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled hereunder if such succession had not occurred, except that for purposes of implementating the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, Company shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 5 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.
4
(b) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amounts are still payable to you hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee, or other designee or, if there be no such designee, to your estate.
6. NOTICE . For the purposes of this Agreement, notices and all other communication provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, prostage prepaid, addressed as follows:
If to the Company:
Volunteer Capital Corporation
101 Winners Circle
Brentwood, Tennessee 37027
Attn: Secretary
If to you to the address set forth on the first part of this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
7. MISCELLANEOUS . No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and such officer as may be specifically designated by the Board of Directors of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Tennessee. The term Company, as used in all Sections of this Agreement except (A) the definition of Change of Control of the Company, (B) Section 5, (C) references to the Companys Board of Directors and (D) references to the Companys common stock shall be deemed to include all of the Companys subsidiaries.
5
8. VALIDITY . The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
9. CONFIDENTIALITY . You shall retain in confidence any and all confidential information known to you concerning the Company and its businesses so long as such information is not otherwise publicly disclosed.
If the terms of the foregoing Agreement are acceptable to you, please sign and return to the Company the enclosed copy of this Agreement whereupon this Agreement shall become a valid and binding agreement between the Company and you.
Sincerely, |
||||||
VOLUNTEER CAPITAL CORPORATION |
||||||
By: /s/ R. Gregory Lewis |
||||||
Attested: |
||||||
/s/ Randall E. Gordon |
||||||
Accepted and Agreed as of the |
||||||
date first above written: |
||||||
/s/ Lonnie J. Stout II |
||||||
(Employee) | ||||||
Witness: |
||||||
/s/ Cynthia B. Dove |
6
AMENDMENT TO SEVERANCE BENEFITS AGREEMENT
THIS AMENDMENT TO SEVERANCE BENEFITS AGREEMENT (the Agreement), entered into this 26th day of December, 2008, by and between J. Alexanders Corporation, a Tennessee corporation (Company), and Lonnie J. Stout II (Executive).
WHEREAS, the Company and Executive are parties to that certain Severance Benefits Agreement, dated September 13, 1989 (the Severance Benefits Agreement); and
WHEREAS, the Company and Executive desire to enter into this Agreement to amend certain provisions of the Severance Benefits Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual agreements contained herein, and other good and valuable consideration, the receipt, sufficiency and mutuality of which are hereby acknowledged, the Company and Executive hereby agree as follows.
1. The following shall be inserted as Section 10 of the Severance Benefits Agreement:
It is intent of both parties that this Agreement is grandfathered from the requirements of Section 409A of the Code pursuant to the requirements of Treasury Regulation 1.409A-6. If it is later determined, that this Agreement is subject to the requirements of Section 409A of the Code, then it is intended that (1) each installment of the payments provided under this Agreement is a separate payment for purposes of Section 409A of the Code and (2) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(9)(iii), and 1.409A-1(b)(9)(v). Notwithstanding the foregoing or anything to the contrary in this Agreement, if the Corporation determines (i) that on the date the Executives employment with the Corporation terminates or at such other time that the Corporation determines to be relevant, the Executive is a specified employee (as such term is defined under Treasury Regulation 1.409A-1(i)(1)) of the Corporation and (ii) that any payments to be provided to the Executive pursuant to this Agreement are or may become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code if provided at the time otherwise required under this Agreement then (A) such payments shall be delayed until the date that is six months after the date of the Executives separation from service (as such term is defined under Treasury Regulation 1.409A-1(h)) with the Corporation, or, if earlier, the date of the Executives death. Any payments delayed pursuant to this Section 10 shall be made in a lump sum on the first day of the seventh month following the Executives separation from service (as such term is defined under Treasury Regulation 1.409A-1(h)), or, if earlier, the date of the Executives death. For purposes of this Section 10, Executive shall mean Lonnie J. Stout II.
1
2. Except as expressly modified by the terms of this Agreement, the provisions of the Severance Benefits Agreement shall continue in full force and effect.
3. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and all of which, taken together, shall be deemed to be one and the same instrument.
4. The validity, interpretation and effect of this Agreement shall be governed exclusively by the laws of the State of Tennessee without regard to the choice of law principals thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written.
EXECUTIVE
/s/ Lonnie J. Stout II Lonnie J. Stout II
J. ALEXANDERS CORPORATION
By: /s/ R. Gregory Lewis Name: R. Gregory Lewis Title: Vice President & Chief Financial Officer |
2
Exhibit 10.15
J. ALEXANDERS CORPORATION
July 30, 2012
Lonnie J. Stout II
Nashville, TN
Dear Lonnie:
This letter amends and restates that certain Letter Agreement, dated as of June 22, 2012, by and between you and J. Alexanders Corporation. This letter describes changes to your Salary Continuation Agreement dated as of December 26, 2008 (the Salary Continuation Agreement ), your Employment Agreement dated as of December 26, 2008 (the Employment Agreement ) and your Severance Benefit Agreement dated as of September 13, 1989 (the Severance Agreement ), in each case between you and J. Alexanders Corporation, a Tennessee corporation (including its successors, the Corporation ). Such changes shall be contingent upon the occurrence of, and effective at, the Effective Time (as defined in that certain Amended and Restated Agreement and Plan of Merger, dated as of July 30, 2012, by and among Fidelity National Financial, Inc. ( Parent ), Fidelity Newport Holdings, LLC ( Operating Company ) (for the limited purposes set forth therein), American Blue Ribbon Holdings, Inc. (for the limited purposes set forth therein), Athena Merger Sub, Inc. (for the limited purposes set forth therein), New Athena Merger Sub, Inc. ( Merger Sub ) and the Corporation (as the same may be amended, modified, supplemented and/or restated from time to time in accordance with the terms thereof, the Merger Agreement )).
Pursuant to the Merger Agreement, the Corporation will merge with Merger Sub and become an indirect, wholly owned subsidiary of Parent, and the assets and liabilities of the Corporation, including the Salary Continuation Agreement, Employment Agreement and Severance Agreement, will remain obligations of the Corporation.
1. |
Amendment of Definition of Base Salary in SCA . The definition of Base Salary under Section 2.a. of your Salary Continuation Agreement is amended, effective as of the Effective Time by addition of the following clause at the end thereof: |
; provided, however, that in the event of the closing of the merger of the Company and New Athena Merger Sub, Inc. ( Merger Sub ) pursuant to that certain Amended and Restated Agreement and Plan of Merger dated as of July 30, 2012, by and among Fidelity National Financial, Inc., Fidelity Newport Holdings, LLC, American Blue Ribbon Holdings, Inc., Athena Merger Sub, Inc., Merger Sub and J. Alexanders Corporation (as the same may be amended, modified, supplemented and/or restated from time to time in accordance with the terms thereof, the Merger Agreement ), for purposes of determining the benefits and payments hereunder, the amount of Base Salary shall be fixed as of the date of the merger and thereafter the Base Salary for purposes hereof shall not be subject to any increase or decrease.
2. |
Amendment to Suspend/Terminate Certain SCA Obligations . Section 7 of the Salary Continuation Agreement is amended, effective as of the Effective Time, to add the following new sentences at the end thereof to read as follows: |
Notwithstanding any other provision in this Agreement, the obligations of the Corporation under this Section 7 shall be suspended during the period that Fidelity National Financial, Inc.s guarantees under Section 16 of this Agreement are in effect. If and only if Fidelity Newport Holdings, LLC ( Operating Company ) at any time beneficially owns any interest in the Corporation, then : (x) Operating Company shall, and hereby does, at and after any such time also guarantee the performance of the obligations of the Corporation hereunder, which guarantee shall continue in force until all such obligations are satisfied; and (y) in the event that, at or after any such time that the Operating Company becomes the guarantor, Fidelity National Financial, Inc.s direct or indirect beneficial ownership (as defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934 (or any successor rules thereto)) of the Corporation is less than 40%, then: (a) the Corporations obligations under this Section 7 , including, without limitation, the Corporations obligation to establish a rabbi trust with funds provided by the Corporation and the Corporations obligation to make contributions to such trust, shall resume and again be effective from and after such time and (b) Fidelity National Financial, Inc.s guarantee set forth in Section 6 of that certain letter agreement, dated July 30, 2012, as may be amended, modified, supplemented and/or restated from time to time, shall terminate, be released and be of no further force and effect upon the Corporations establishment of a rabbi trust in conformity with the provisions of this Section 7 . In no event shall the occurrence of the events described in clause (y) of the preceding sentence have any effect on the obligations of the Operating Company pursuant to its guarantee made in accordance with the preceding sentence.
3. |
Certain Amendments to Employment Agreement . Section 9(f)(i) of the Employment Agreement will be deleted and replaced with the following, effective as of the Effective Time: |
(i) |
A material reduction by the Company in the Executives title or position, or a material reduction by the Company in the Executives authority, duties or responsibilities (including, without limitation, Executive no longer serving on the Companys board of directors), or the assignment by the Company to the Executive of any duties or responsibilities that are materially inconsistent with such title, position, authority, duties or responsibilities; provided, however, that in the event of the closing of the acquisition of the Company pursuant to the terms and conditions of that certain Amended and Restated Agreement and Plan of Merger, dated as of July 30, 2012, by and among the Company, Fidelity National Financial, Inc., American Blue Ribbon Holdings, Inc., Athena Merger Sub, Inc., New Athena Merger Sub, Inc. and Fidelity Newport Holdings, LLC (as the same may be amended, modified, supplemented and/or restated from time to time in accordance with the terms thereof) (the Merger ) and any subsequent contribution, transfer or assignment (by operation of law or otherwise) of the Companys business to Fidelity Newport Holdings, LLC or any of its subsidiaries, the assignment of the Executive to a position at Fidelity Newport Holdings, LLC in its main corporate office in Nashville, Tennessee, or upscale dining division office in Nashville, Tennessee, with similar duties and responsibilities as the Executives duties and responsibilities prior to the Merger (except as modified as a result of changes described in clauses (i), (ii) and (iii) of this sentence below) and substantially similar salary and benefits or their equivalent value (with equity to be appropriate to his level in the organization) as the Executives salary and benefits prior to the Merger, will not be deemed to constitute a material reduction in title, position, authority, duties or responsibilities, or the assignment of duties or responsibilities that are materially inconsistent with the Executives title, position, authority, duties or responsibilities prior to the Merger, even in the event of (i) any change in Executives title or position to an appropriate position with the upscale dining division of Fidelity Newport Holdings, LLC, (ii) any change in the person or persons to whom Executive reports, and/or (iii) the fact that Executive is no longer an executive officer of a public company. |
2
4. |
Certain Amendments to Severance Agreement . A proviso will be added at the end of Section 3(iv) of the Severance Agreement, effective as of the Effective Time, as follows: |
; provided, however, that in the event of the closing of the acquisition of the Company pursuant to the terms and conditions of that certain Amended and Restated Agreement and Plan of Merger, dated as of July 30, 2012, by and among the Company, Fidelity National Financial, Inc., American Blue Ribbon Holdings, Inc., Athena Merger Sub, Inc., New Athena Merger Sub, Inc. and Fidelity Newport Holdings, LLC (as the same may be amended, modified, supplemented and/or restated from time to time in accordance with the terms thereof) (the Merger ) and any subsequent contribution, transfer or assignment (by operation of law or otherwise) of the Companys business to Fidelity Newport Holdings, LLC or any of its subsidiaries, the assignment of the Executive to a position at Fidelity Newport Holdings, LLC in its main corporate office in Nashville, Tennessee, or upscale dining division office in Nashville, Tennessee, with similar duties and responsibilities as your duties and responsibilities prior to the Merger (except as modified as a result of changes described in clauses (i), (ii) and (iii) of this sentence below), and substantially similar salary and benefits or their equivalent value (with equity to be appropriate to his level in the organization) as your salary and benefits prior to the Merger, will not be deemed to constitute a change in your present responsibilities, even in the event of (i) any change in your title or position to an appropriate position with the upscale dining division of Fidelity Newport Holdings, LLC, (ii) any change in the person or persons to whom you report, and/or (iii) the fact that you are no longer an executive officer of a public company.
3
5. |
Certain Omnibus Amendments . Each of the Salary Continuation Agreement, Employment Agreement and Severance Agreement shall be amended, effective as of the Effective Time, to provide as follows: |
Each reference to the Corporation herein shall be deemed to refer solely to J. Alexanders Corporation and its successors and permitted assigns.
6. |
Guarantee . Parent shall, and hereby does, contingent on the occurrence of, and effective upon, the Acceptance Time (as defined in the Merger Agreement), guarantee the performance of the obligations of the Corporation under the Salary Continuation Agreement; provided , however , that if and only if Operating Company at any time beneficially owns any interest in the Corporation, then : (x) Operating Company shall, and hereby does, at and after any such time also guarantee the performance of the obligations of the Corporation under the Salary Continuation Agreement, which guarantee shall continue in force until all such obligations are satisfied; and (y) in the event that, at or after any such time that the Operating Company becomes the guarantor, the Parents direct or indirect beneficial ownership (as defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934 (or any successor rules thereto)) of the Corporation is less than 40%, then: (a) the Corporations obligations under Section 7 of the Salary Continuation Agreement shall resume and again be effective and (b) Parents guarantee under this Section 6 shall terminate, be released and be of no further force and effect upon the Corporations establishment of a rabbi trust in conformity with the provisions of such Section 7 of the Salary Continuation Agreement. In no event shall the occurrence of the events described in clause (b) of the preceding sentence have any effect on the obligations of the Operating Company pursuant to its guarantee made in accordance with the preceding sentence. Each of Parent and Operating Company hereby waives diligence, presentment, demand of performance, filing of any claim, any right to require any proceeding first against the Corporation, protest, notice and all demands whatsoever in connection with the performance of its obligations set forth in this Section 6 . If Executive so requests, any such rabbi trust shall be established with the Corporations funds at the Operating Company level. The Executive hereby acknowledges and agrees that, effective immediately upon execution and delivery of this letter agreement, the Executive hereby (i) releases American Blue Ribbon Holdings, Inc. from any and all obligations and liability under this letter and (ii) waives any rights against American Blue Ribbon Holdings, Inc. under this letter. |
7. |
Continuing Force and Effect . Other than the amendments specifically agreed herein, the Salary Continuation Agreement, Employment Agreement and Severance Agreement remain in full force and effect. |
4
8. |
Severability . If any provision of this letter agreement or the application of any such provision to any party or circumstances will be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this letter agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, will not be affected thereby, and each provision hereof will be validated and will be enforced to the fullest extent permitted by law. |
9. |
Governing Law . This letter agreement will be governed by and construed under the internal laws of the State of Tennessee, without regard to its conflict of laws principles. |
10. |
Jurisdiction and Venue . This letter agreement will be deemed performable by all parties in, and venue will exclusively be in the state or federal courts located in the State of Tennessee. Each party hereto and future signatory hereby consents to the personal jurisdiction of these courts and waive any objections that such venue is objectionable or improper. |
11. |
Headings . All descriptive headings of Sections and paragraphs in this letter agreement are intended solely for convenience, and no provision of this letter agreement is to be construed by reference to the heading of any section or paragraph. |
12. |
Counterparts . This letter agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. |
13. |
Acknowledgement . By signing below, Parent and Operating Company hereby acknowledge that you have given up significant potential value by fixing the definition of Base Salary in Section 1 above. The Executive, the Corporation, Parent, Operating Company and Purchaser hereby agree that this letter amends that certain Letter Agreement, dated as of June 22, 2012, by and between you and J. Alexanders on the terms and subject to the conditions of this letter. |
14. |
Successors . This letter agreement is binding on the parties hereto and their successors and permitted assigns. The parties acknowledge that the obligations of the Corporation pursuant to the agreements referenced herein shall be assumed by any original or subsequent transferee of all or substantially all the assets of the Corporation ( Successor ), and any such Successor shall be bound as the Corporation hereunder and pursuant to the agreements referenced herein. |
If you agree to the amendments to your Salary Continuation Agreement, Employment Agreement and Severance Agreement set forth above, please sign as indicated on the following page and return a signed copy to the Corporation and to Brent Bickett.
5
In Witness Whereof, the parties hereto have executed this Letter Agreement effective as of the date set forth above.
J. ALEXANDERS CORPORATION |
||||
By: |
/s/ R. Gregory Lewis |
|||
Name: |
R. Gregory Lewis |
|||
Title: |
Vice President of Finance and Secretary |
Acknowledged and Agreed this 30th day of July 2012, by:
/s/ Lonnie J. Stout II |
Lonnie J. Stout II |
[Signature Page to Letter Agreement (Lonnie Stout)]
Acknowledged and Agreed (solely in respect of Sections 2 , 6 and 13 above) this 30th day of July 2012, by:
FIDELITY NEWPORT HOLDINGS, LLC |
||||
By: |
/s/ Hazem Ouf |
|||
Name: |
Hazem Ouf |
|||
Title: |
Chief Executive Officer |
[Signature Page to Letter Agreement (Lonnie Stout)]
Acknowledged and Agreed (solely in respect of Sections 2 , 6 and 13 above) this 30th day of July 2012, by:
FIDELITY NATIONAL FINANCIAL, INC. |
||||
By: |
/s/ Michael L. Gravelle |
|||
Name: |
Michael L. Gravelle |
|||
Title: |
Executive Vice President, General Counsel and Corporate Secretary |
[Signature Page to Letter Agreement (Lonnie Stout)]
Acknowledged and Agreed (solely in respect of Sections 6 and 13 above) this 30th day of July 2012, by:
AMERICAN BLUE RIBBON HOLDINGS, INC. |
||||
By: |
/s/ Michael L. Gravelle |
|||
Name: |
Michael L. Gravelle |
|||
Title: |
Executive Vice President, General Counsel and Corporate Secretary |
[Signature Page to Letter Agreement (Lonnie Stout)]
Exhibit 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of December 26, 2008, (the Agreement ), is by and between J. Alexanders Corporation, a Tennessee corporation (the Company ), and J. Michael Moore (the Executive ).
WHEREAS , the Company desires to continue to employ the Executive to serve as Vice-President, Human Resources and Administration of the Company and the Executive desires to hold such positions under the terms and conditions of this Agreement; and
WHEREAS , the parties desire to enter into this Agreement setting forth the terms and conditions of the employment relationship between the Executive and the Company.
NOW, THEREFORE , intending to be legally bound hereby, the parties agree as follows:
1. Employment . The Company hereby employs the Executive (directly or through a wholly owned subsidiary) and the Executive hereby agrees to continue his employment with the Company upon the terms and subject to the conditions set forth herein.
2. Term .
(a) Subject to termination pursuant to Section 9 , the term of the employment by the Company of the Executive pursuant to this Agreement (as the same may be renewed or extended, the Term ) will commence on the date hereof (the Effective Date ) and terminate on December 25, 2011.
(b) Commencing on December 26, 2011 and on each subsequent anniversary thereof, this Agreement shall automatically renew for successive one-year periods upon all terms and conditions herein, unless either party shall provide written notice to the other not less than ninety (90) days prior to the expiration of the Term. Notwithstanding any other provision of this Agreement, any non-renewal by the Company of this Agreement shall constitute a termination by the Company without Cause and will serve as a termination event giving rise to the Executives right to receive payments pursuant to Section 9(e) as if the expiration of this Agreement were the Date of Termination, unless employment continues after the expiration of this Agreement on terms mutually agreed by the Company and the Executive.
3. Position . During the Term, the Executive will serve as Vice-President, Human Resources and Administration of the Company performing duties commensurate with such position and will perform such additional duties as the Board of Directors of the Company (the Board ) will determine. The Executive will report to the Chief Executive Officer of the Company. The Executive agrees to serve, without any additional compensation, as a member of the board of directors and/or as an officer of any subsidiary of the Company. If the Executives employment is terminated for any reason, whether such termination is voluntary or involuntary, the Executive will resign as a Company (and as a director and/or officer of any of its subsidiaries), such resignation to be effective no later than the date of termination of the Executives employment with the Company.
4. Duties . During the Term, the Executive will devote his full time and attention during normal business hours to the business and affairs of the Company and its subsidiaries (the Business ); provided , however , that the Executive will be permitted to devote reasonable periods of time to charitable and community activities, so long as such activities do not interfere with the performance of the Executives responsibilities under this Agreement.
5. Salary and Bonus .
(a) For purposes of this Agreement, the Initial Contract Year will mean the period commencing on the Effective Date and ending on December 25, 2009. A Contract Year will mean the Initial Contract Year and any anniversary thereof.
(b) During the Initial Contract Year, the Company will pay the Executive a base salary at the rate in effect on the date hereof. Each calendar year during the term of this Agreement, the Compensation Committee of the Board (the Compensation Committee ) will, in good faith, review the Executives annual base salary and may increase (but not decrease) such amount as it may deem advisable (such annual rate of salary, as the same may be increased, the Base Salary ). The Base Salary will be payable to the Executive in substantially equal installments in accordance with the Companys normal payroll practices.
(c) During each fiscal year of the Company, the Executive will be eligible for a target cash bonus based on a percentage of his then-current Base Salary to be designated by the Compensation Committee. The Executives entitlement to such cash bonus, if any, will be determined by the Compensation Committee based on the terms of the executive bonus program then in effect, including the Compensation Committees good faith determination as to whether pre-determined performance targets of the Company have been achieved following a review of the Companys year-end financial statements. All such performance targets will be determined by the Compensation Committee after consulting with Executive.
6. Long-Term Incentive Awards . The Executive shall participate in any long-term incentive awards offered to senior executives of the Company, as determined by the Compensation Committee.
7. Vacation, Holidays and Sick Leave; Life Insurance . During the Term, the Executive will be entitled to paid vacation in accordance with the Companys standard vacation accrual policies for its senior executive officers as may be in effect from time to time; provided , that the Executive will during each Contract Year be entitled to at least four (4) weeks of such vacation. During the Term, the Executive will also be entitled to participate in all applicable Company employee benefits plans as may be in effect from time to time for the Companys senior executive officers.
8. Business Expenses . The Executive will be reimbursed for all reasonable business expenses incurred by him in connection with his employment following timely submission by the Executive of receipts and other documentation in accordance with the Companys normal expense reimbursement policies.
9. Termination of Agreement . The Executives employment by the Company pursuant to this Agreement will not be terminated before the end of the Term hereof, except as set forth in this Section 9 .
(a) By Mutual Consent . The Executives employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive.
(b) Death . The Executives employment pursuant to this Agreement will be terminated upon the death of the Executive, in which event the Executives spouse or heirs will receive, (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination (as defined in Section 9(i) hereof), (ii) any other unpaid benefits (including death benefits) to which they are entitled under any plan, policy or program of the Company applicable to the
2
Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements) and (iii) the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid. The amounts referred to in clauses (i) and (iii) will be paid to the Executives spouse or heirs in a lump sum no later than thirty (30) days following the date of the Executives death, with the date of such payment within such period determined by the Company in its sole discretion.
(c) Disability . The Executives employment pursuant to this Agreement may be terminated by delivery of written notice to the Executive by the Company (a Notice of Termination ) in the event that the Executive is unable, as determined by the independent members of the Board of Directors (or any committee of the Board comprised solely of independent directors), to perform the essential functions of his regular duties and responsibilities, with or without reasonable accommodation, due to a medically determinable physical or mental illness that has lasted (or can reasonably be expected to last) for a period of ninety (90) consecutive days, or for a total of ninety (90) days or more in any consecutive one hundred and eighty (180) day-period. If the Executives employment is terminated pursuant to this Section 9(c) , the Executive will be entitled to receive (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (ii) any other unpaid benefits (including disability benefits) to which he is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements), (iii) the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid, and (iv) health insurance benefits substantially commensurate with the Companys standard health insurance benefits for the Executive and the Executives spouse and dependents through the second anniversary of the Date of Termination; provided, however, that such continued benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis); provided further, that any continued health insurance benefits which are provided under this Agreement (including benefits under Section 9(m)) shall run concurrently with any continuation coverage that the Executive or the Executives spouse and dependents are entitled to under COBRA and any rights (including the length of coverage) that the Executive and the Executives spouse and dependents may be entitled to under COBRA shall not be increased (or extended) due to any continued health insurance benefits which may be provided to the Executive and the Executives spouse or dependents pursuant to this Agreement. The amounts referred to in clauses (i) and (iii) will be paid to the Executives no later than thirty (30) days following the date of the Executives Date of Termination, with the date of such payment within such period determined by the Company in its sole discretion.
(d) By the Company for Cause . The Executives employment pursuant to this Agreement may be terminated by delivery of a Notice of Termination upon the occurrence of any of the following events (each of which will constitute Cause for termination): (i) conviction of a felony or of a crime involving misappropriation or embezzlement; (ii) willful and material wrongdoing by the Executive, including, but not limited to, acts of dishonesty or fraud, which have a material adverse effect on the Company or any of its subsidiaries; (iii) repeated material failure of the Executive to follow the direction of the Company and its Board of Directors regarding the material duties of employment; or (iv) material breach by the Executive of a material obligation under this Agreement. In order for the Company to be entitled to terminate the Executive for Cause under this Section 9(d) the following conditions must be met: (A) the Company shall provide written notice to the Executive of the existence of a condition described in clauses (i), (ii), (iii) or (iv) above within 90 days of the initial existence of such condition (which written notice shall specifically identify the manner in which the Company believes the Executive has triggered one of the conditions); (B) the Executive shall be entitled to remedy the condition within 30 days of receiving such notice; and (C) the Executive shall have failed to remedy the condition during such
3
period. If the Executives employment is terminated pursuant to this Section 9(d) , the Executive will be entitled to receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination (such amounts shall be paid within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion), any other unpaid benefits to which he is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (including, without limitation, the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid, with such benefits to be paid in accordance with the applicable provisions of the applicable arrangement) and no more.
(e) By the Company Without Cause . The Executives employment pursuant to this Agreement may be terminated by the Company at any time without Cause by delivery of a Notice of Termination. If the Executives employment is terminated pursuant to this Section 9(e) , the Executive will be entitled to receive (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (ii) the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid, (iii) an amount equal to two hundred percent (200%) of the Executives Base Salary, (iv) an amount equal to two hundred percent (200%) of the Executives average cash bonus paid (or earned, but not yet paid, for the fiscal year immediately preceding the fiscal year in which the Date of Termination occurs) to Executive in respect of the three most recent fiscal years immediately preceding the fiscal year in which the Executives employment terminates hereunder, or, if greater than such average, the bonus paid (or earned, but not yet paid) for the fiscal year immediately preceding the fiscal year in which the Date of Termination occurs (such average or greater amount, the Adjusted Bonus Amount ), (v) health insurance benefits substantially commensurate with the Companys standard health insurance benefits for the Executive and the Executives spouse and dependents through the second anniversary of the Date of Termination; provided , however , that such continued benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis); provided further, that any continued health insurance benefits which are provided under this Agreement (including benefits under Section 9(m)) shall run concurrently with any continuation coverage that the Executive or the Executives spouse and dependents are entitled to under COBRA and any rights (including the length of coverage) that the Executive and the Executives spouse and dependents may be entitled to under COBRA shall not be increased (or extended) due to any continued health insurance benefits which may be provided to the Executive and the Executives spouse or dependents pursuant to this Agreement ; and (vi) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements). The amounts referred to in clauses (i) through (iv) above will be paid to the Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion. As a condition to receiving such payment, the Executive agrees to execute, deliver and not revoke a general release in the form attached as Exhibit A .
(f) By the Executive for Good Reason . The Executives employment pursuant to this Agreement may be terminated by the Executive by written notice of his resignation ( Notice of Resignation ) delivered to the Company within two (2) years of any of the following (each of which will constitute Good Reason for resignation): (i) a material reduction by the Company in the Executives title or position, or a material reduction by the Company in the Executives authority, duties or responsibilities (including, without limitation, Executive no longer serving on the Companys board of directors), or the assignment by the Company to the Executive of any duties or responsibilities that are materially inconsistent with such title, position, authority, duties or responsibilities; (ii) a material
4
reduction in Base Salary; (iii) any material breach of this Agreement by the Company; or (iv) the Companys requiring the Executive to relocate his office location more than fifty (50) miles from Nashville, Tennessee. For avoidance of doubt, Good Reason will exclude the death or Disability of the Executive. In order for the Executive to be entitled to resign for Good Reason under this Section 9(f) the following conditions must be met: (A) the Executive shall notify the Company of the existence of a condition described in (i), (ii), or (iii) within 90 days of the initial existence of the condition; (B) the Company shall be entitled to remedy the condition within 30 days of receiving such notice; and (C) the Company shall have failed to remedy the condition during such time period. If the Executive resigns for Good Reason pursuant to this Section 9(f) , the Executive will be entitled to receive (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (ii) the amount of any cash bonus related to any Contract Year ending before the Date of Termination that has been earned but remains unpaid, (iii) an amount equal to two hundred percent (200%) of the Executives Base Salary, (iv) an amount equal to two hundred percent (200%) of the Adjusted Bonus Amount, (v) health insurance benefits substantially commensurate with the Companys standard health insurance benefits for the Executive and the Executives spouse and dependents through the second anniversary of the Date of Termination; provided , however , that such continued benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis); provided further, that any continued health insurance benefits which are provided under this Agreement (including benefits under Section 9(m)) shall run concurrently with any continuation coverage that the Executive or the Executives spouse and dependents are entitled to under COBRA and any rights (including the length of coverage) that the Executive and the Executives spouse and dependents may be entitled to under COBRA shall not be increased (or extended) due to any continued health insurance benefits which may be provided to the Executive and the Executives spouse or dependents pursuant to this Agreement, and (vi) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements). The amounts referred to in clauses (i) through (iv) above will be paid to the Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion. As a condition to receiving such payment, the Executive agrees to execute, deliver and not revoke a general release in the form attached as Exhibit A .
(g) By the Executive Without Good Reason . The Executives employment pursuant to this Agreement may be terminated by the Executive at any time by delivery of a Notice of Resignation to the Company. If the Executives employment is terminated pursuant to this Section 9(g) , the Executive will receive all Base Salary and benefits (including any earned but unpaid cash bonus) to be paid or provided to the Executive under this Agreement through the Date of Termination (such amounts shall be paid within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion), any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (including, without limitation, the amount of any cash bonus related to any year ending before the Date of Termination which has been earned but remains unpaid, with such benefits to be paid in accordance with the applicable provisions of the applicable arrangement) and no more.
(h) Following a Change in Control . If, within thirty-six (36) months following a Change in Control, the Executive (i) is terminated without Cause, or (ii) resigns for Good Reason (as defined and qualified in Section 9(f) above), then the Executive will be entitled to receive (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (ii) the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid, (iii) an amount equal to two hundred ninety-nine percent (299% )
5
of the Adjusted Bonus Amount, (iv) an amount equal to two hundred ninety-nine percent (299%) of the Executives Base Salary, (v) notwithstanding anything to the contrary in any equity incentive plan or agreement, all equity incentive awards which are then outstanding, to the extent not then vested, shall vest, (vi) health insurance benefits substantially commensurate with the Companys standard health insurance benefits for the Executive and the Executives spouse and dependents through the third anniversary of the Date of Termination; provided , however , that such continued benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis); provided further, that any continued health insurance benefits which are provided under this Agreement (including benefits under Section 9(m)) shall run concurrently with any continuation coverage that the Executive or the Executives spouse and dependents are entitled to under COBRA and any rights (including the length of coverage) that the Executive and the Executives spouse and dependents may be entitled to under COBRA shall not be increased (or extended) due to any continued health insurance benefits which may be provided to the Executive and the Executives spouse or dependents pursuant to this Agreement, and (vii) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements). The amounts referred to in clauses (i) through (iv) above will collectively be referred to as the Change in Control Severance Amount . The Change in Control Severance Amount will be paid to the Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion. The Executive agrees to execute, deliver and not revoke a general release in the form attached as Exhibit A . Payments pursuant to this Section 9(h) will be made in lieu of, and not in addition to, any payment pursuant to any other paragraph of this Section 9 .
(i) Date of Termination . The Executives Date of Termination will be (i) if the Executives employment is terminated pursuant to Section 9(b) , the date of his death, (ii) if the Executives employment is terminated pursuant to Section 9(c) , Section 9(d) or Section 9(e) , the date on which a Notice of Termination is given, (iii) if the Executives employment is terminated pursuant to Section 9(f) , the date specified in the Notice of Resignation, (iv) if the Executives employment is terminated pursuant to Section 9(g) , the date specified in the Notice of Resignation ( provided that the Executive will deliver such Notice of Resignation to the Company not less than thirty (30) days before the Date of Termination specified therein), or (v) if the Executives employment is terminated pursuant to Section 9(h) , the date specified in the Notice of Termination or the Notice of Resignation, as applicable.
(j) For the purposes of this Agreement, a Change in Control will mean any of the following events:
(i) any person or entity, including a group as defined in Section 13(d)(3) of the Exchange Act, other than the Company or a wholly-owned subsidiary thereof or any employee benefit plan of the Company or any of its subsidiaries, becomes the beneficial owner of the Companys securities having 35% or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business); or
(ii) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sales of all or substantially all assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of the Company or any successor company or entity entitled to vote generally in the election of the directors of the Company or a successor company or entity after such transaction are held in the aggregate by the holders of the Companys securities entitled to vote generally in the election of directors of the Company immediately prior to such transaction; or
6
(iii) during any period of two consecutive years, individuals who at the beginning of any such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Companys shareholders, of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the Subject Person ) acquired beneficial ownership of more than the permitted amount of the outstanding voting securities as a result of the acquisition of voting securities by the Company which, by reducing the number of voting securities outstanding, increased the proportional number of shares beneficially owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the beneficial owner of any additional voting securities, then a Change in Control shall occur.
(k) Delay of Payment Required by Section 409A of the Code . It is intended that (i) each payment or installment of payments provided under this Agreement will be a separate payment for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the Code ) and (ii) that the payments will satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code, including those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term deferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two-year exception), and 1.409A-1(b)(9)(v) (regarding reimbursements and other separation pay). Notwithstanding anything to the contrary in this Agreement, if the Company determines (i) that on the date the Executives employment with the Company terminates or at such other time that the Company determines to be relevant, the Executive is a specified employee (as such term is defined under Treasury Regulation 1.409A-1(i)) of the Company and (ii) that any payments to be provided to the Executive pursuant to this Agreement are or may become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code if provided at the time otherwise required under this Agreement, then such payments will be delayed until the date that is six (6) months after the date of the Executives separation from service (as such term is defined under Treasury Regulation 1.409A-1(h)) with the Company. Any payments delayed pursuant to this Section 9(k) will be made in a lump sum on the first day of the seventh month following the Executives separation from service (as such term is defined under Treasury Regulation 1.409A-1(h)) and any remaining payments, if applicable, required to be made under this Agreement will be paid upon the schedule otherwise applicable to such payments under the Agreement. In addition, to the extent that any reimbursement, fringe benefit or other, similar plan or arrangement in which the Executive participates during the term of Executives employment under this Agreement or thereafter provides for a deferral of compensation within the meaning of Section 409A of the Code, (i) the amount eligible for reimbursement or payment under such plan or arrangement in one calendar year may not affect the amount eligible for reimbursement or payment in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid), and (ii) subject to any shorter time periods provided herein or the applicable plans or arrangements, any reimbursement or payment of an expense under such plan or arrangement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred.
(l) Other Agreements . This Agreement does not replace or supersede the Executives Amended and Restated Salary Continuation Agreement with the Company. No reduction of amounts to be paid hereunder shall be made with respect to amounts of any payments made under the Salary Continuation Agreement.
7
(m) Insurance . In the event of termination under subsections 9(a) , (c) , (e) , (f) , (g) , or (h) , where the Executive does not obtain substantially similar health insurance coverage from a subsequent employer as set forth in such subsections, after the period for the provision of required health insurance coverage by the Company at its cost under such subsections, the Company shall, while Executive is living, use its commercially reasonable efforts to make available to the Executive health insurance benefits for the Executive and his spouse and dependents under the Companys then-existing health insurance plan, at the Executives expense and at no additional cost to the Company; ; provided that if any person covered under this Section 9(m) is eligible for coverage under Medicare or any similar federal health benefits program, to the extent permitted by applicable law and not specifically contrary to the Companys health insurance plan, such Medicare coverage shall be primary.
10. Representations .
(a) The Company represents and warrants that this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms.
(b) The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement.
11. Assignment; Binding Agreement . This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement will inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, will be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or, if there is no such designee, to his estate.
12. Confidentiality; Non-Solicitation; Non-Competition .
(a) Non-Solicitation . The Executive agrees that for a period of one (1) year after the Date of Termination if the Executive receives a payment under Section 9(e) , Section 9(f) or Section 9(h) , the Executive will not directly or indirectly solicit, on his own behalf or on behalf of any other person or entity, the services of any person who is an executive officer of the Company or solicit any of the Companys executive officers to terminate their employment or agency with the Company, except with the Companys express written consent.
(b) Non-competition. So long as Executive remains employed by the Company, Executive shall not compete, directly or indirectly, with the Company. For a period of twelve (12) months following termination of Executives employment with the Company (the Non-compete Period ) if the Executive receives a payment under Section 9(e) , Section 9(f) or Section 9(h) , the Executive shall not enter into or engage in any business that consists of a casual dining restaurant concept whose menu is substantially similar to the Companys menu in a geographic market where the Company operates a restaurant at the time of the termination of the Executive (the Company Business ). For the purposes of this subsection (b) , Executive understands that he shall be competing if he engages in any or all of the
8
activities set forth herein directly as an individual on his own account, or indirectly as a partner, joint venturer, employee, agent, consultant, officer and/or director of any firm, association, corporation, or other entity, or as a stockholder of any corporation in which Executive owns, directly or indirectly, individually or in the aggregate, more than one percent (1%) of the outstanding stock; provided , however , that at such time as he is no longer employed by the Company, Executives direct or indirect ownership as a stockholder of less than five percent (5%) of the outstanding stock of any publicly traded corporation shall not by itself constitute a violation of this subsection (b) .
(c) The parties intend that each of the covenants contained in this Section 12 will be construed as a series of separate covenants relating to jurisdictions in which the Company may have a restaurant, one for each state of the United States, each county of each state of the United States. Except for geographic coverage, each such separate covenant will be deemed identical in terms to the covenant contained in the preceding subsections of this Section 12 . If, in any judicial proceeding, a court will refuse to enforce any of the separate covenants (or any part thereof) deemed included in those subsections, then such unenforceable covenant (or such part) will be deemed eliminated from this Agreement for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. In the event that the provisions of this Section 12 should ever be deemed to exceed the time or geographic limitations, or the scope of this covenant is ever deemed to exceed that which is permitted by applicable law, then such provisions will be reformed to the maximum time, geographic limitations or scope, as the case may be, permitted by applicable law. The unenforceability of any covenant in this Section 12 will not preclude the enforcement of any other of said covenants or provisions of any other obligation of the Executive or the Company hereunder, and the existence of any claim or cause of action by the Executive or the Company against the other, whether predicated on the Agreement or otherwise, will not constitute a defense to the enforcement by the Company of any of said covenants.
(d) If the Executive will be in violation of any provision of this Section 12 , then each time limitation set forth in this Section 12 will be extended for a period of time equal to the period of time during which such violation or violations occur. If the Company seeks injunctive relief from such violation in any court, then the covenants in this Section 12 will be extended for a period of time equal to the pendency of such proceedings, including all appeals by the Executive.
13. Confidentiality .
(a) During the Term and at any time thereafter, Executive shall not disclose, furnish, disseminate, make available or, except in the ordinary course of performing his duties on behalf of the Company, use any trade secrets or confidential business and technical information of the Company, or its parent, subsidiaries or affiliated entities without limitation as to when it was acquired by Executive or whether it was compiled or obtained by, or furnished to Executive while he was employed by the Company. Such trade secrets and confidential business and technical information are considered to include, without limitation, development plans, financial statistics, research data, or any other statistics and plans contained in monthly and annual review books, profit plans, capital plans, critical issues plans, strategic plans, or marketing, real estate, or restaurant operations plans. Executive specifically acknowledges that all such information, whether reduced to writing or maintained in Executives mind or memory and whether compiled by the Company and/or Executive derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been put forth by the Company to maintain the secrecy of such information, that such information is and shall remain the sole property of the Company and that any retention and use of such information during or after the termination of Executives relationship with the Company (except in the course of Executives performance of his duties) shall constitute a misappropriation of the Companys trade secrets.
9
(b) The above restrictions on disclosure and use of confidential information shall not prevent Executive from: (i) using or disclosing information in the good faith performance of his duties on behalf of the Company; (ii) using or disclosing information to another employee to whom disclosure is required to perform in good faith the duties of either person on behalf of the Company; (iii) using or disclosing information to another person or entity bound by a duty or an agreement of confidentiality as part of the performance in good faith of Executives duties on behalf of the Company or as authorized in writing by the Company; (iv) at any time after the period of Executives employment using or disclosing information to the extent such information is, through no fault or disclosure of Executive, generally known to the public; (v) using or disclosing information which was not disclosed to Executive by the Company or otherwise during the period of Executives employment which is then disclosed to Executive after termination of Executives employment with the Company by a third party who is under no duty or obligation not to disclose such information; or (vi) disclosing information as required by law. If Executive becomes legally compelled to disclose any of the confidential information, Executive shall (i) provide the Company with reasonable prior written notice of the need for such disclosure such that the Company may obtain a protective order; (ii) if disclosure is required, furnish only that portion of the confidential information which, in the written opinion of Executives counsel delivered to the Company, is legally required; and (iii) exercise reasonable efforts to obtain reliable assurances that confidential treatment shall be accorded to the confidential information.
14. Company Remedies . The Executive acknowledges and agrees that the restrictions and covenants contained in this Agreement are reasonable and necessary to protect the legitimate interests of the Company and that the services to be rendered by him hereunder are of a special, unique and extraordinary character. To that end, in the event of any breach by the Executive of Section 12 or Section 13 hereof, the Executive agrees that the Company would be entitled to injunctive relief, which entails that (i) it would be difficult to replace the Executives services; (ii) the Company would suffer irreparable harm that would not be adequately compensated by monetary damages and (iii) the remedy at law for any breach of any of the provisions of Section 12 or Section 13 may be inadequate. The Executive further acknowledges that legal counsel of his choosing has reviewed this Agreement, that the Executive has consulted with such counsel, and that he agrees to the terms herein without reservation. Accordingly, the Executive specifically agrees that the Company will be entitled, in addition to any remedy at law or in equity, to (i) retain any and all payments not yet paid to him under this Agreement in the event of any breach by him of his covenants under Sections 12 and 13 hereunder, (ii) in the event of such breach, recover an amount equal to the after-tax payments previously made to the Executive under Section 9(e)(iii) , 9(e)(iv) , 9(f)(iii) , 9(f)(iv) , or 9(h)(iii) , 9(h)(iv) , and (iii) obtain preliminary and permanent injunctive relief and specific performance for any actual or threatened violation of Section 12 or Section 13 of this Agreement. This provision with respect to injunctive relief will not, however, diminish the right to claim and recover damages, or to seek and obtain any other relief available to it at law or in equity, in addition to injunctive relief.
15. Certain Additional Payments by the Company .
(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, if it will be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 15 ) (a Payment ) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the Excise Tax ), then the Executive will be entitled to receive an additional payment (a Gross-Up Payment ) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties
10
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, and taking account of any withholding obligation on the part of the Company, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 15(c) , all determinations required to be made under this Section 15 , including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be used in arriving at such determination, will be made by the Companys regular certified public accounting firm (the Accounting Firm ), which will provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. If the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the applicable Change in Control, the Company will appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm will then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm will be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 15 , will be paid by the Company to the Executive, net of any of the Companys federal or state withholding obligations with respect to such Payment, within five (5) days of the receipt of the Accounting Firms determination. Any determination by the Accounting Firm will be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made ( Underpayment ), consistent with the calculations required to be made hereunder. If the Company exhausts its remedies pursuant to Section 15(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm will determine the amount of the Underpayment that has occurred and any such Underpayment will be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive will notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment (or an additional Gross-Up Payment). Such notification will be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and will apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive will not pay such claim before the expiration of the thirty-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing before the expiration of such period that it desires to contest such claim, the Executive will:
(i) give the Company any information reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim as the Company will reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such claim; provided , however , that the Company will bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and will indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and
11
expenses. Without limitation of the foregoing provisions of this Section 15(c) , the Company will control all proceedings taken in connection with such contest (to the extent applicable to the Excise Tax and the Gross-Up Payment) and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company will determine; provided , however , that if the Company directs the Executive to pay such claim and sue for a refund, the Company will advance the amount of such payment to the Executive, on an interest-free basis and will indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided , further , that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Companys control of the contest will be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive will be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 15(c) , the Executive becomes entitled to receive any refund with respect to such claim, the Executive will (subject to the Companys complying with the requirements of Section 15(c) ) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 15(c) , a determination is made that the Executive will not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund before the expiration of thirty (30) days after such determination, then such advance will be forgiven and will not be required to be repaid and the amount of such advance will offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
(e) Notwithstanding any other provision of this Section 15 , any Gross-Up Payment or Underpayment due to the Executive hereunder will be paid in accordance with this Section 15 , but in no event may any such payments be made later than December 31 of the year following the year (i) any excise tax is paid to the Internal Revenue Service regarding this Section 15 or (ii) any tax audit or litigation brought by the Internal Revenue Service or other relevant taxing authority related to this Section 15 is completed or resolved.
16. Entire Agreement . This Agreement and the equity incentive and benefit plans and agreements referenced herein contain all the understandings between the parties hereto pertaining to the matters referred to herein, and supersede any other undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. To the extent that any term or provision of any other document or agreement executed by the Executive with or for the Company during the Term of this Agreement conflicts or is inconsistent with this Agreement, the terms and conditions of this Agreement shall prevail and supersede such inconsistent or conflicting term or provision.
17. Amendment, Modification or Waiver . No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.
12
18. Notices . Any notice to be given hereunder will be in writing and will be deemed given when delivered personally, sent by courier or facsimile (if a facsimile number is set forth) or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice hereunder in writing:
Any notice delivered personally or by courier under this Section 18 will be deemed given on the date delivered and any notice sent by facsimile or registered or certified mail, postage prepaid, return receipt requested, will be deemed given on the date transmitted by facsimile or five days after post-marked if sent by U.S. mail.
19. Severability . If any provision of this Agreement or the application of any such provision to any party or circumstances will be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, will not be affected thereby, and each provision hereof will be validated and will be enforced to the fullest extent permitted by law.
20. Governing Law . This Agreement will be governed by and construed under the internal laws of the State of Tennessee, without regard to its conflict of laws principles.
21. Jurisdiction and Venue . This Agreement will be deemed performable by all parties in, and venue will exclusively be in the state or federal courts located in the State of Tennessee. The Executive and the Company hereby consent to the personal jurisdiction of these courts and waive any objections that such venue is objectionable or improper.
22. Headings . All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.
13
23. Withholding . All payments to the Executive under this Agreement will be reduced by all applicable withholding required by federal, state or local law.
24. Counterparts . This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
25. Expenses Incurred in Enforcing this Agreement . The Executive shall be entitled to reimbursement of costs and expenses (including reasonable attorneys fees) incurred by the Executive or his heirs or executors in connection with any claim or proceeding to enforce this Agreement by Executive.
26. Tax Matters . By accepting this Agreement, Executive hereby agrees and acknowledges that neither the Company nor its subsidiaries make any representations with respect to the application of Section 409A of the Code to any tax, economic or legal consequences of any payments payable to the Executive hereunder (including, without limitation, payments pursuant to Section 9 above). Further, by the acceptance of this Agreement, the Executive acknowledges that (i) Executive has obtained independent tax advice regarding the application of Section 409A of the Code to the payments due to the Executive hereunder, (ii) Executive retains full responsibility for the potential application of Section 409A of the Code to the tax and legal consequences of payments payable to the Executive hereunder and (iii) the Company shall not indemnify or otherwise compensate the Executive for any violation of Section 409A of the Code that may occur in connection with this Agreement (including, without limitation, payments pursuant to Section 9 above). The parties agree to cooperate in good faith to amend such documents and to take such actions as may be necessary or appropriate to comply with Code Section 409A.
[Signature Page Follows]
14
IN WITNESS WHEREOF , the parties hereto have executed this Employment Agreement effective as of date set forth above.
J. ALEXANDERS CORPORATION
By: /s/ R. Gregory Lewis
Name: R. Gregory Lewis
Title: Chief Financial Officer, Vice-President, Finance
EXECUTIVE
/s/ J. Michael Moore
15
Exhibit 10.17
AMENDED AND RESTATED SALARY CONTINUATION AGREEMENT
This Amended and Restated Salary Continuation Agreement (Agreement), which supersedes and cancels any previously dated Salary Continuation Agreements, is made and entered into as of this 26th day of December, 2008, by and between J. Alexanders Corporation, a Tennessee corporation with its principal office in Nashville, Tennessee (the Corporation), and J. Michael Moore, a resident of Nashville, Tennessee (Employee).
For and in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
1. Recitals . The Corporation values the efforts, abilities and accomplishments of Employee in the performance of his duties as an employee of the Corporation, and the Corporation recognizes the importance of Employee as a member of the management of the Corporation. In order to induce the continued employment with the Corporation of Employee, Corporation is willing to provide the benefits contained in this Agreement, and Employee accepts these benefits as a material part of his employment with the Corporation.
2. Definitions .
a. Base Salary for purposes of calculating a benefit hereunder as of a specific date shall be the greater of (i) the Employees actual annual base salary in effect as of that date or (ii) the average of the Employees annual base salary for the three full fiscal years immediately preceding the Separation from Service.
b. Beneficiary or Beneficiaries shall mean the person(s) designated as the Employees beneficiary or beneficiaries in an election form filed by the Employee with the Corporation, or in the absence of such designation, the Employees Beneficiary shall be deemed to be the Employees estate.
c. Change in Control shall mean a change in control of the Corporation as defined in Section 2(g) of the J. Alexanders Corporation Amended and Restated 2004 Equity Incentive Plan.
d. Code shall mean the Internal Revenue Code of 1986, as amended from time to time. References to any section of the Internal Revenue Code shall include any successor provision thereto.
e. Conversion Interest Rate shall mean seven percent (7%).
f. Employees Early Retirement Date shall mean the date of the Employees Separation from Service before attaining his Normal Retirement Age, for reasons other than death.
g. Employees Normal Retirement Date shall mean the date of the Employees Separation from Service on or after the Employee attaining his Normal Retirement Age.
h. ERISA shall mean the Employee Retirement Income Security Act of 1974.
i. Normal Retirement Age shall mean the date the Employee attains age 65.
j. Qualified Change in Control shall mean a change in the ownership or effective control of the Corporation, or a change in the ownership of a substantial portion of the assets of the Corporation as defined in Treasury Regulation 1.409A-3(i)(5).
k. Separation from Service shall mean a separation from service as defined in Treasury Regulation 1.409A-1(h). Pursuant to Treasury Regulation 1.409A-1(h), a Separation from Service shall occur on the date the Corporation and the Employee reasonably anticipate that no further services will be performed after a certain date or that the level of bona fide services the Employee will perform after such date (whether as an Employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the Corporation if the Employee has been providing services to the Corporation for less than thirty-six (36) months).
l. Treasury Regulations(s) shall mean the regulations promulgated by the Treasury Department under the Code.
Other terms may be defined in sections of this Agreement where such terms are used.
3. Normal Retirement Benefit . In the event of the Employees Separation from Service from the Corporation for any reason other than death on or after the date on which the Employee attains his Normal Retirement Age, then the Corporation shall pay to Employee an annual benefit equal to fifty percent (50%) of the Employees Base Salary as of the Employees Normal Retirement Date (the Normal Retirement Benefit). The Normal Retirement Benefit shall be payable to the Employee in equal monthly installments, for a period of fifteen (15) years (one-hundred eighty (180) payments) (the Normal Retirement Benefit Payment Period). The Normal Retirement Benefit shall commence within thirty (30) days of the Employees Normal Retirement Date (with the date of the initial payment within such period determined by the Corporation in its sole discretion) and shall continue until the expiration of the Normal Retirement Benefit Payment Period.
4. Termination of Employment Prior to Normal Retirement Age . In the event of the Employees Separation from Service before the Employees Normal Retirement Age for reasons other than death, the Corporation shall pay to the Employee a lump sum amount (the Vested Benefit), as follows. Where such Separation from Service occurs prior to the close of business on December 26, 2008, the Vested Benefit shall be a lump sum equal to the amount on Exhibit A applicable to 2008. For each day beginning at the close of business on December 26, 2008 until and including the close of business on December 31, 2008, with respect to a Separation from Service as of such times, the Vested Benefit payable in a lump sum shall increase by one-sixth of
2
the difference between the computed Vested Benefit applicable on January 1, 2009 and the amount on Exhibit A applicable to 2008. Where such Separation from Service occurs on or after January 1, 2009, the Vested Benefit shall be a lump sum equal to the present value as of the date of payment of an annual benefit equal to fifty percent (50%) of the Employees Base Salary as of the Employees Early Retirement Date, payable in equal monthly installments for a period of fifteen (15) years (one-hundred eighty (180) payments) commencing on the date the Employee attains his Normal Retirement Age. The present value calculation of the Vested Benefit in the foregoing sentence shall use a discount rate equal to the Conversion Interest Rate. Notwithstanding the foregoing, if the amount payable under this Section 4 as the Vested Benefit is less than the designated dollar amount on attached Exhibit A as the vested amount that would apply on the relevant date of termination (the Minimum Lump Sum), then the Minimum Lump Sum shall be paid in lieu thereof. The Vested Benefit shall be paid within thirty (30) days of the Employees Early Retirement Date, with the date of such payment within such period determined by the Corporation in its sole discretion. Notwithstanding any other provision of this Agreement to the contrary, the Employee may modify the time and form of the payment of benefits due to the Employee for a Separation from Service on or after January 1, 2009 under this Section 4 by notifying the Corporation that the Employee elects, in lieu of payment of the Vested Benefit as a lump sum, payment of the Vested Benefit as an annual benefit equal to fifty percent (50%) of the Employees Base Salary as of the Employees Early Retirement Date, paid in equal monthly installments for a period of fifteen (15) years (one-hundred eighty (180) payments) commencing on the later of the date the Employee attains his Normal Retirement Age and the date that is five years after Separation from Service; provided such modification shall not take effect until at least twelve (12) months after the date the modification is made. If an attempted modification does not meet the requirements of the preceding sentence, then it shall be void, and the time and form of payment in effect with regard to the Employees benefits under the Agreement prior to such attempted modification shall remain effective.
5. Death Benefit .
a. Death Prior to the Employees Normal Retirement Age . If Employee dies while employed by the Corporation prior to attaining his Normal Retirement Age, the Corporation shall pay a salary continuation benefit, as set forth below, for a period ending on the date on which the Employee would have attained his Normal Retirement Age or ten years (one-hundred twenty (120) payments) from the date of the Employees death, whichever is longer (the Death Benefit Payment Period). Such benefits shall (i) be payable in equal monthly installments to the Employees Beneficiary; (ii) commence within thirty (30) days of the Employees death (with the date of the initial payment within such period determined by the Corporation in its sole discretion) and (iii) shall continue until the expiration of the Death Benefit Payment Period. The annual salary continuation benefit for the first full year following the death of Employee shall be one-hundred percent (100%) of the Employees Base Salary in effect hereunder as of the Employees death. Thereafter, for the remainder of the Death Benefit Payment Period, the annual salary continuation benefit shall be fifty percent (50%) of the Employees Base Salary in effect hereunder as of the Employees death.
3
b. Death after Normal Retirement Age, but prior to the Employees Normal Retirement Date . If the Employee dies after attaining his Normal Retirement Age, but prior to the Employees Normal Retirement Date, the Employees Beneficiary shall receive the Employees Normal Retirement Benefit calculated as if the Employee had experienced a Separation from Service as of his date of death. Such benefits shall commence within thirty (30) days of the Employees death (with the date of the initial payment within such period determined by the Corporation in its sole discretion) and shall continue for the Normal Retirement Payment Period.
c. Death after the Commencement of Benefits . If the Employee dies after his benefit payments have commenced in installments under the applicable Section of this Agreement, the installment payments shall continue to be paid to the Employees Beneficiary in the same manner and at the same times as they would have been paid to the Employee had he survived.
6. Delay of Payments Pursuant to Section 409A of the Code . Notwithstanding anything to the contrary in this Agreement, if (i) the Employee is a specified employee (as such term is defined under Treasury Regulation 1.409A-1(i)) of the Corporation on the date of the Employees Separation from Service and (ii) in connection with such Separation From Service any payments to be provided to the Employee pursuant to this Agreement are or may become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code if provided at the time otherwise required under this Agreement, then such payments shall be delayed until the date that is six (6) months after the date of the Employees Separation from Service from the Corporation, or, if earlier, the date of the Employees death. Any payments delayed pursuant to this Section 6 shall be made in a lump sum on the first day of the seventh month following the Employees Separation from Service or, if earlier, the date of the Employees death, and any remaining payments, if applicable, required to be made under this Agreement will be paid upon the schedule otherwise applicable to such payments under the Agreement.
7. Funding upon a Change in Control . Upon a Change in Control, the Corporation shall establish a rabbi trust in accordance with Revenue Procedure 92-64 and subsequent guidance published by the Internal Revenue Service (the Trust) and shall contribute an amount sufficient based on projected benefits to fund the Employees Normal Retirement Benefit. The amount of any such contribution shall include any investment vehicles (such as Corporation-owned insurance contracts on the life of the Employee) previously established by the Corporation in connection with the proposed funding of benefits. Further, the Corporation shall have an ongoing obligation to continue to make contributions to the rabbi trust in an amount sufficient to fund the Employees Normal Retirement Benefit until the Employee receives the full amount of the benefit he is entitled to receive under the Agreement. The calculation of the funding of the Employees Normal Retirement Benefit shall be determined by an actuary or accountant chosen by the Corporation and such calculation must be completed prior to the closing of any such Change in Control. The calculation shall thereafter be performed no less often than annually in order to calculate whether additional contributions are necessary. The actuary or accountant chosen by the Corporation shall utilize the following principal assumptions when determining the funding required by this Section 7 at the time any calculation is performed: (i) an interest rate equal to the Conversion Interest Rate; (ii) a turnover rate of zero;
4
(iii) an assumption that the Employee will remain employed until his Normal Retirement Date; and (iv) a four and one-half percent (4.5%) annual increase in Base Salary above the Base Salary used to calculate benefits hereunder at the time any calculation is performed. The Corporation may not remove funds which have previously been contributed to the Trust at any time, except to the extent necessary to pay the benefits due under this Agreement. Notwithstanding the foregoing, the assets of the Trust shall at all times remain subject to the claims of general creditors of the Corporation in the event of its insolvency as more fully described in the Trust. Notwithstanding the fact that a Trust shall be established under this Section 7 upon a Change in Control, the Corporation shall remain liable for paying the benefits under this Agreement. However, any payment of benefits to the Employee or his Beneficiary made by such Trust shall satisfy the Corporations obligation to make such payment to such person. Upon satisfaction of the Corporations obligation to make any and all benefit payments to the Employee or his Beneficiary, such Trust shall terminate, and any remaining Trust assets shall be returned to the Corporation. The Trust may contain such other terms and conditions as the Corporation may determine to be necessary or desirable. Notwithstanding the foregoing, the Trust may not be amended or terminated (except as provided in Section 15) upon a Change in Control or thereafter, except to the extent required to ensure the Trust is in compliance with ERISA or the Code.
8. Claims Procedure . If any benefits become payable under this Agreement, the Employee or his designated beneficiary shall file a claim for benefits by notifying the Corporation orally or in writing. If the claim is wholly or partially denied, the Corporation will provide a written notice within ninety (90) days specifying the reason for the denial, the provisions of the Agreement upon which the denial is based, and any additional material or information necessary to receive benefits, if any. Also, such written notice shall indicate the steps to be taken if a review of the denial is desired. If a claim is denied and a review is desired, the Employee or his designated beneficiary shall notify the Corporation in writing within sixty (60) days. In requesting a review, the Employee or beneficiary may review this Agreement, and may submit any written issues and comments he feels are appropriate. The Corporation shall then review the claim and provide a written decision within sixty (60) days stating the specific reasons for the decision and including references to the provisions of the Agreement on which the decision is based. Notwithstanding the foregoing, the Employee shall be entitled to reimbursement of all costs and expenses (including reasonable attorneys fees) incurred by the Employee or his beneficiaries, heirs or executors in connection with any claim or proceeding to enforce this Agreement.
9. Non-Assignable Benefits . Neither the Employee nor his Beneficiary shall have any right to sell, assign, transfer or otherwise convey or encumber the right to receive any benefits hereunder.
10. Other Employment Benefits . Any payments under this Agreement shall be independent of, and in addition to, employment benefits under any other plan, program or agreement which may be in effect between the parties hereto, or any other compensation payable to the Employee or the Employees Beneficiary by the Corporation.
5
11. No Contract of Employment . This Agreement shall not be construed as a contract of employment, nor does it restrict the right of the Corporation to discharge the Employee or the right of the Employee to terminate his employment.
12. Benefits Not Funded . Subject to Section 7 of this Agreement, the Corporation shall be under no obligation whatsoever to purchase or maintain any contract, policy or other asset to provide the benefits under this Agreement. Further, any contract, policy or other asset which the Corporation may utilize to assure itself of the funds to provide the benefits hereunder shall not serve in any way as security to the Employee for the Corporations performance under this Agreement, and Employee shall have no right to, or claim against, such contract or policy. Employee further acknowledges that with respect to the benefits provided under this Agreement, Employees status is that of an unsecured creditor of the Corporation.
13. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee.
14. Amendment .
a. Amendment by the Corporation Prior to a Change in Control . Except as provided in Section 15(a) below, this Agreement may not be altered, amended or revoked prior to a Change in Control, except by a written agreement signed by both parties or as required to comply with ERISA or the Code.
b. Amendment by the Corporation upon or Following a Change in Control . Upon a Change in Control and thereafter, this Agreement may not be altered, amended or revoked by the Corporation under any circumstances, except as required to comply with ERISA or the Code.
15. Termination.
a. Termination by Corporation prior to a Change in Control . This Agreement may be terminated by the Corporation under one of the following conditions:
(1) The Corporation may terminate this Agreement at its sole discretion, provided that:
(i) |
All arrangements sponsored by the Corporation that would be aggregated with this Agreement under Section 1.409A-1(c)(2) of the Treasury Regulations are terminated with respect to all Employees; |
(ii) |
No payments will be made, other than those otherwise payable under the terms of this Agreement absent the Agreements termination, within twelve (12) months of the termination of the Agreement; |
6
(iii) |
All payments due to the Employee under this Agreement will be made within twenty-four (24) months of such termination; |
(iv) |
The Corporation does not adopt a new arrangement that would be aggregated with any terminated arrangement under Section 409A at any time within the three-year period following the date of termination of this Agreement; and |
(v) |
The termination does not occur proximate to a downturn in the financial health of the Corporation. |
(2) The Corporation, at its discretion, may terminate this Agreement within twelve (12) months of a corporate dissolution taxed under Section 331 of the Code, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A), provided that amounts deferred under this Agreement are included in the gross income of Employee in the latest of the following years (or, if earlier, the taxable year in which the amount is actually or constructively received):
(i) |
The calendar year in which the termination of this Agreement occurs; |
(ii) |
The first calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or |
(iii) |
The first calendar year in which the payment is administratively practicable; |
(3) The Corporation may amend this Agreement to provide that termination of the Agreement will occur under such conditions and events as may be prescribed by the Secretary of the Treasury in generally applicable guidance published in the Internal Revenue Bulletin.
If the Corporation terminates this Agreement pursuant to this Section 15(a), the Employee shall be entitled to receive a lump sum payment equal to the present value of the benefit the Employee would have received under the Agreement if he had terminated employment on the date of such termination, which present value shall be determined as of the date of payment using the Conversion Interest Rate as a discount rate. The lump sum payment shall be made in accordance with and at such time as permitted by this Section 15(a) or Section 409A of the Code.
(b) Termination by Corporation upon or Following a Change in Control . Upon a Change in Control and thereafter, this Agreement may not be terminated by the Corporation under any circumstances.
7
16. Guaranty. In the event of a Change in Control, the Corporation shall obtain the guaranty of the Corporations obligations under this Agreement by the acquirer and the ultimate parent entity (based on the majority of voting power and pecuniary interest in the outstanding equity) of the Corporation or its successor after such Change in Control. The failure of the Company to obtain such guaranty of this Agreement as reflected in an endorsement as guarantor of the Corporations obligations hereunder shall constitute a material breach of this agreement by the Corporation.
8
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Salary Continuation Agreement as of the day and year first above written.
J. ALEXANDERS CORPORATION |
||
By: |
/s/ R. Gregory Lewis, Chief Financial Officer, Vice-President, Finance |
|
Employee: |
/s/ J. Michael Moore J. Michael Moore |
9
Exhibit A
Minimum Lump Sum
Year of Termination |
Amount Vested |
|
2008 |
$137,344 | |
2009 |
163,550 | |
2010 |
190,439 | |
2011 |
217,967 | |
2012 |
246,108 | |
2013 |
274,833 | |
2014 |
304,100 | |
2015 |
333,910 | |
2016 |
364,232 | |
2017 |
394,853 | |
2018 |
425,225 | |
2019 |
456,166 | |
2020 |
487,673 | |
2021 |
519,709 | |
2022 |
552,243 | |
2023 |
584,725 | |
2024 |
617,580 |
A-1
Exhibit 10.18
J. ALEXANDERS CORPORATION
July 30, 2012
Michael Moore
Nashville, TN
Dear Mike:
This letter amends and restates that certain Letter Agreement, dated as of June 22, 2012, by and between you and J. Alexanders Corporation. This letter describes changes to your Salary Continuation Agreement dated as of December 26, 2008 (the Salary Continuation Agreement ), and your Employment Agreement dated as of December 26, 2008 (the Employment Agreement ), in each case between you and J. Alexanders Corporation, a Tennessee corporation (including its successors, the Corporation ). Such changes shall be contingent upon the occurrence of, and effective at, the Effective Time (as defined in that certain Amended and Restated Agreement and Plan of Merger, dated as of July 30, 2012, by and among Fidelity National Financial, Inc. ( Parent ), Fidelity Newport Holdings, LLC ( Operating Company ) (for the limited purposes set forth therein), American Blue Ribbon Holdings, Inc. (for the limited purposes set forth therein), New Athena Merger Sub, Inc. ( Merger Sub ) and the Corporation (as the same may be amended, modified, supplemented and/or restated from time to time in accordance with the terms thereof, the Merger Agreement )).
Pursuant to the Merger Agreement, the Corporation will merge with Merger Sub and become an indirect, wholly owned subsidiary of Parent, and the assets and liabilities of the Corporation, including the Salary Continuation Agreement and Employment Agreement, will remain obligations of the Corporation.
1. Amendment of Definition of Base Salary in SCA . The definition of Base Salary under Section 2.a. of your Salary Continuation Agreement is amended, effective as of the Effective Time by addition of the following clause at the end thereof:
; provided, however, that in the event of the closing of the merger of the Company and New Athena Merger Sub, Inc. ( Merger Sub ) pursuant to that certain Amended and Restated Agreement and Plan of Merger dated as of July 30, 2012, by and among Fidelity National Financial, Inc., Fidelity Newport Holdings, LLC, American Blue Ribbon Holdings, Inc., Merger Sub and J. Alexanders Corporation (as the same may be amended, modified, supplemented and/or restated from time to time in accordance with the terms thereof, the Merger Agreement ), for purposes of determining the benefits and payments hereunder, the amount of Base Salary shall be fixed as of the date of the merger and thereafter the Base Salary for purposes hereof shall not be subject to any increase or decrease.
2. Amendment to Suspend/Terminate Certain SCA Obligations . Section 7 of the Salary Continuation Agreement is amended, effective as of the Effective Time, to add the following new sentences at the end thereof to read as follows:
Notwithstanding any other provision in this Agreement, the obligations of the Corporation under this Section 7 shall be suspended during the period that Fidelity National Financial, Inc.s guarantees under Section 16 of this Agreement are in effect. If and only if Fidelity Newport Holdings, LLC ( Operating Company ) at any time beneficially owns any interest in the Corporation, then : (x) Operating Company shall, and hereby does, at and after any such time also guarantee the performance of the obligations of the Corporation hereunder, which guarantee shall continue in force until all such obligations are satisfied; and (y) in the event that, at or after any such time that the Operating Company becomes the guarantor, Fidelity National Financial, Inc.s direct or indirect beneficial ownership (as defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934 (or any successor rules thereto)) of the Corporation is less than 40%, then: (a) the Corporations obligations under this Section 7 , including, without limitation, the Corporations obligation to establish a rabbi trust with funds provided by the Corporation and the Corporations obligation to make contributions to such trust, shall resume and again be effective from and after such time and (b) Fidelity National Financial, Inc.s guarantee set forth in Section 5 of that certain letter agreement, dated July 30, 2012, as may be amended, modified, supplemented and/or restated from time to time, shall terminate, be released and be of no further force and effect upon the Corporations establishment of a rabbi trust in conformity with the provisions of this Section 7 . In no event shall the occurrence of the events described in clause (y) of the preceding sentence have any effect on the obligations of the Operating Company pursuant to its guarantee made in accordance with the preceding sentence.
3. Certain Amendments to Employment Agreement . Section 9(f)(i) of the Employment Agreement will be deleted and replaced with the following, effective as of the Effective Time:
(i) |
A material reduction by the Company in the Executives title or position, or a material reduction by the Company in the Executives authority, duties or responsibilities, or the assignment by the Company to the Executive of any duties or responsibilities that are materially inconsistent with such title, position, authority, duties or responsibilities; provided, however, that in the event of the closing of the acquisition of the Company pursuant to the terms and conditions of that certain Amended and Restated Agreement and Plan of Merger, dated as of July 30, 2012, by and among the Company, Fidelity National Financial, Inc., American Blue Ribbon Holdings, Inc., Athena Merger Sub, Inc., New Athena Merger Sub, Inc. and Fidelity Newport Holdings, LLC (as the same may be amended, modified, supplemented and/or restated from time to time and in accordance with the terms thereof) (the Merger ) and any subsequent contribution, transfer or assignment (by operation of law or otherwise) of the Companys business to Fidelity Newport Holdings, LLC or any of its subsidiaries, the assignment of the Executive to a position at Fidelity Newport Holdings, LLC in its main corporate office in Nashville, Tennessee, or upscale dining division office in Nashville, Tennessee, with similar duties and responsibilities as the Executives duties and responsibilities prior to the Merger (except as modified as a result of changes described in clauses (i), (ii) and (iii) of this sentence below) and substantially similar salary and benefits or their equivalent value (with equity to be appropriate to his level in the organization) as the Executives salary and benefits prior to the Merger, will not be deemed to constitute a material reduction in title, position, authority, duties or responsibilities, or the assignment of duties or responsibilities that are materially inconsistent with the Executives title, position, authority, duties or responsibilities prior to the Merger, even in the event of (i) any change in Executives title or position to an appropriate position with the upscale dining division of Fidelity Newport Holdings, LLC, (ii) any change in the person or persons to whom Executive reports, and/or (iii) the fact that Executive is no longer an executive officer of a public company. |
2
4. Certain Omnibus Amendments . Each of the Salary Continuation Agreement and Employment Agreement shall be amended, effective as of the Effective Time, to provide as follows:
Each reference to the Corporation herein shall be deemed to refer solely to J. Alexanders Corporation and its successors and permitted assigns.
5. Guarantee . Parent shall, and hereby does, contingent on the occurrence of, and effective upon, the Acceptance Time (as defined in the Merger Agreement), guarantee the performance of the obligations of the Corporation under the Salary Continuation Agreement; provided , however , that if and only if Operating Company at any time beneficially owns any interest in the Corporation, then : (x) Operating Company shall, and hereby does, at and after any such time also guarantee the performance of the obligations of the Corporation under the Salary Continuation Agreement, which guarantee shall continue in force until all such obligations are satisfied; and (y) in the event that, at or after any such time that the Operating Company becomes the guarantor, the Parents direct or indirect beneficial ownership (as defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934 (or any successor rules thereto)) of the Corporation is less than 40%, then: (a) the Corporations obligations under Section 7 of the Salary Continuation Agreement shall resume and again be effective and (b) Parents guarantee under this Section 5 shall terminate, be released and be of no further force and effect upon the Corporations establishment of a rabbi trust in conformity with the provisions of such Section 7 of the Salary Continuation Agreement. In no event shall the occurrence of the events described in clause (b) of the preceding sentence have any effect on the obligations of the Operating Company pursuant to its guarantee made in accordance with the preceding sentence. Each of Parent and Operating Company hereby waives diligence, presentment, demand of performance, filing of any claim, any right to require any proceeding first against the Corporation, protest, notice and all demands whatsoever in connection with the performance of its obligations set forth in this Section 5 . If Executive so requests, any such rabbi trust shall be established with the Corporations funds at the Operating Company level. The Executive hereby acknowledges and agrees that, effective immediately upon execution and delivery of this letter agreement, the Executive hereby (i) releases American Blue Ribbon Holdings, Inc. from any and all obligations and liability under this letter and (ii) waives any rights against American Blue Ribbon Holdings, Inc. under this letter.
6. Continuing Force and Effect . Other than the amendments specifically agreed herein, the Salary Continuation Agreement and Employment Agreement remain in full force and effect.
3
7. Severability . If any provision of this letter agreement or the application of any such provision to any party or circumstances will be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this letter agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, will not be affected thereby, and each provision hereof will be validated and will be enforced to the fullest extent permitted by law.
8. Governing Law . This letter agreement will be governed by and construed under the internal laws of the State of Tennessee, without regard to its conflict of laws principles.
9. Jurisdiction and Venue . This letter agreement will be deemed performable by all parties in, and venue will exclusively be in the state or federal courts located in the State of Tennessee. Each party hereto and future signatory hereby consents to the personal jurisdiction of these courts and waive any objections that such venue is objectionable or improper.
10. Headings . All descriptive headings of Sections and paragraphs in this letter agreement are intended solely for convenience, and no provision of this letter agreement is to be construed by reference to the heading of any section or paragraph.
11. Counterparts . This letter agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
12. Acknowledgement . By signing below, Parent and Operating Company hereby acknowledge that you have given up significant potential value by fixing the definition of Base Salary in Section 1 above. The Executive, the Corporation, Parent, Operating Company and Purchaser hereby agree that this letter amends that certain Letter Agreement, dated as of June 22, 2012, by and between you and J. Alexanders on the terms and subject to the conditions of this letter.
13. Successors . This letter agreement is binding on the parties hereto and their successors and permitted assigns. The parties acknowledge that the obligations of the Corporation pursuant to the agreements referenced herein shall be assumed by any original or subsequent transferee of all or substantially all the assets of the Corporation ( Successor ), and any such Successor shall be bound as the Corporation hereunder and pursuant to the agreements referenced herein.
If you agree to the amendments to your Salary Continuation Agreement and Employment Agreement set forth above, please sign as indicated on the following page and return a signed copy to the Corporation and to Brent Bickett.
4
In Witness Whereof, the parties hereto have executed this Letter Agreement effective as of the date set forth above.
J. ALEXANDERS CORPORATION |
||
By: |
/s/ Lonnie J. Stout II |
|
Name: |
Lonnie J. Stout II |
|
Title: |
Chairman, President and |
|
Chief Executive Officer |
Acknowledged and Agreed this 30th day of July 2012, by:
/s/ Michael Moore |
Michael Moore |
[Signature Page to Letter Agreement (Michael Moore)]
Acknowledged and Agreed (solely in respect of Sections 2 , 5 and 12 above) this 30th day of July 2012, by:
FIDELITY NEWPORT HOLDINGS, LLC
By: |
/s/ Hazem Ouf |
|
Name: |
Hazem Ouf |
|
Title: |
Chief Executive Officer |
[Signature Page to Letter Agreement (Michael Moore)]
Acknowledged and Agreed (solely in respect of Sections 2 , 5 and 12 above) this 30th day of July 2012, by:
FIDELITY NATIONAL FINANCIAL, INC.
By: |
/s/ Michael L. Gravelle |
|
Name: |
Michael L. Gravelle |
|
Title: |
Executive Vice President, General Counsel and Corporate Secretary |
[Signature Page to Letter Agreement (Michael Moore)]
Acknowledged and Agreed (solely in respect of Sections 5 and 12 above) this 30th day of July 2012, by:
AMERICAN BLUE RIBBON HOLDINGS, INC.
By: |
/s/ Michael L. Gravelle |
|
Name: |
Michael L. Gravelle |
|
Title: |
Executive Vice President, General Counsel |
|
and Corporate Secretary |
[Signature Page to Letter Agreement (Michael Moore)]
Exhibit 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of December 26, 2008, (the Agreement ), is by and between J. Alexanders Corporation, a Tennessee corporation (the Company ), and Mark A. Parkey (the Executive ).
WHEREAS , the Company desires to continue to employ the Executive to serve as Vice-President and Controller of the Company and the Executive desires to hold such positions under the terms and conditions of this Agreement; and
WHEREAS , the parties desire to enter into this Agreement setting forth the terms and conditions of the employment relationship between the Executive and the Company.
NOW, THEREFORE , intending to be legally bound hereby, the parties agree as follows:
1. Employment . The Company hereby employs the Executive (directly or through a wholly owned subsidiary) and the Executive hereby agrees to continue his employment with the Company upon the terms and subject to the conditions set forth herein.
2. Term .
(a) Subject to termination pursuant to Section 9 , the term of the employment by the Company of the Executive pursuant to this Agreement (as the same may be renewed or extended, the Term ) will commence on the date hereof (the Effective Date ) and terminate on December 25, 2011.
(b) Commencing on December 26, 2011 and on each subsequent anniversary thereof, this Agreement shall automatically renew for successive one-year periods upon all terms and conditions herein, unless either party shall provide written notice to the other not less than ninety (90) days prior to the expiration of the Term. Notwithstanding any other provision of this Agreement, any non-renewal by the Company of this Agreement shall constitute a termination by the Company without Cause and will serve as a termination event giving rise to the Executives right to receive payments pursuant to Section 9(e) as if the expiration of this Agreement were the Date of Termination, unless employment continues after the expiration of this Agreement on terms mutually agreed by the Company and the Executive.
3. Position . During the Term, the Executive will serve as Vice-President and Controller of the Company performing duties commensurate with such positions and will perform such additional duties as the Board of Directors of the Company (the Board ) will determine. The Executive will report to the Chief Executive Officer of the Company. The Executive agrees to serve, without any additional compensation, as a member of the board of directors and/or as an officer of any subsidiary of the Company. If the Executives employment is terminated for any reason, whether such termination is voluntary or involuntary, the Executive will resign as a Company (and as a director and/or officer of any of its subsidiaries), such resignation to be effective no later than the date of termination of the Executives employment with the Company.
4. Duties . During the Term, the Executive will devote his full time and attention during normal business hours to the business and affairs of the Company and its subsidiaries (the Business ); provided , however , that the Executive will be permitted to devote reasonable periods of time to charitable and community activities, so long as such activities do not interfere with the performance of the Executives responsibilities under this Agreement.
5. Salary and Bonus .
(a) For purposes of this Agreement, the Initial Contract Year will mean the period commencing on the Effective Date and ending on December 25, 2009. A Contract Year will mean the Initial Contract Year and any anniversary thereof.
(b) During the Initial Contract Year, the Company will pay the Executive a base salary at the rate in effect on the date hereof. Each calendar year during the term of this Agreement, the Compensation Committee of the Board (the Compensation Committee ) will, in good faith, review the Executives annual base salary and may increase (but not decrease) such amount as it may deem advisable (such annual rate of salary, as the same may be increased, the Base Salary ). The Base Salary will be payable to the Executive in substantially equal installments in accordance with the Companys normal payroll practices.
(c) During each fiscal year of the Company, the Executive will be eligible for a target cash bonus based on a percentage of his then-current Base Salary to be designated by the Compensation Committee. The Executives entitlement to such cash bonus, if any, will be determined by the Compensation Committee based on the terms of the executive bonus program then in effect, including the Compensation Committees good faith determination as to whether pre-determined performance targets of the Company have been achieved following a review of the Companys year-end financial statements. All such performance targets will be determined by the Compensation Committee after consulting with Executive.
6. Long-Term Incentive Awards . The Executive shall participate in any long-term incentive awards offered to senior executives of the Company, as determined by the Compensation Committee.
7. Vacation, Holidays and Sick Leave; Life Insurance . During the Term, the Executive will be entitled to paid vacation in accordance with the Companys standard vacation accrual policies for its senior executive officers as may be in effect from time to time; provided , that the Executive will during each Contract Year be entitled to at least four (4) weeks of such vacation. During the Term, the Executive will also be entitled to participate in all applicable Company employee benefits plans as may be in effect from time to time for the Companys senior executive officers.
8. Business Expenses . The Executive will be reimbursed for all reasonable business expenses incurred by him in connection with his employment following timely submission by the Executive of receipts and other documentation in accordance with the Companys normal expense reimbursement policies.
9. Termination of Agreement . The Executives employment by the Company pursuant to this Agreement will not be terminated before the end of the Term hereof, except as set forth in this Section 9 .
(a) By Mutual Consent . The Executives employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive.
(b) Death . The Executives employment pursuant to this Agreement will be terminated upon the death of the Executive, in which event the Executives spouse or heirs will receive, (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination (as defined in Section 9(i) hereof), (ii) any other unpaid benefits (including death benefits) to which they are entitled under any plan, policy or program of the Company applicable to the
2
Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements) and (iii) the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid. The amounts referred to in clauses (i) and (iii) will be paid to the Executives spouse or heirs in a lump sum no later than thirty (30) days following the date of the Executives death, with the date of such payment within such period determined by the Company in its sole discretion.
(c) Disability . The Executives employment pursuant to this Agreement may be terminated by delivery of written notice to the Executive by the Company (a Notice of Termination ) in the event that the Executive is unable, as determined by the independent members of the Board of Directors (or any committee of the Board comprised solely of independent directors), to perform the essential functions of his regular duties and responsibilities, with or without reasonable accommodation, due to a medically determinable physical or mental illness that has lasted (or can reasonably be expected to last) for a period of ninety (90) consecutive days, or for a total of ninety (90) days or more in any consecutive one hundred and eighty (180) day-period. If the Executives employment is terminated pursuant to this Section 9(c) , the Executive will be entitled to receive (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (ii) any other unpaid benefits (including disability benefits) to which he is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements), (iii) the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid, and (iv) health insurance benefits substantially commensurate with the Companys standard health insurance benefits for the Executive and the Executives spouse and dependents through the second anniversary of the Date of Termination; provided, however, that such continued benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis); provided further, that any continued health insurance benefits which are provided under this Agreement (including benefits under Section 9(m)) shall run concurrently with any continuation coverage that the Executive or the Executives spouse and dependents are entitled to under COBRA and any rights (including the length of coverage) that the Executive and the Executives spouse and dependents may be entitled to under COBRA shall not be increased (or extended) due to any continued health insurance benefits which may be provided to the Executive and the Executives spouse or dependents pursuant to this Agreement . The amounts referred to in clauses (i) and (iii) will be paid to the Executives no later than thirty (30) days following the date of the Executives Date of Termination, with the date of such payment within such period determined by the Company in its sole discretion.
(d) By the Company for Cause . The Executives employment pursuant to this Agreement may be terminated by delivery of a Notice of Termination upon the occurrence of any of the following events (each of which will constitute Cause for termination): (i) conviction of a felony or of a crime involving misappropriation or embezzlement; (ii) willful and material wrongdoing by the Executive, including, but not limited to, acts of dishonesty or fraud, which have a material adverse effect on the Company or any of its subsidiaries; (iii) repeated material failure of the Executive to follow the direction of the Company and its Board of Directors regarding the material duties of employment; or (iv) material breach by the Executive of a material obligation under this Agreement. In order for the Company to be entitled to terminate the Executive for Cause under this Section 9(d) the following conditions must be met: (A) the Company shall provide written notice to the Executive of the existence of a condition described in clauses (i), (ii), (iii) or (iv) above within 90 days of the initial existence of such condition (which written notice shall specifically identify the manner in which the Company believes the Executive has triggered one of the conditions); (B) the Executive shall be entitled to remedy the condition within 30 days of receiving such notice; and (C) the Executive shall have failed to remedy the condition during such
3
period. If the Executives employment is terminated pursuant to this Section 9(d) , the Executive will be entitled to receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination (such amounts shall be paid within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion), any other unpaid benefits to which he is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (including, without limitation, the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid, with such benefits to be paid in accordance with the applicable provisions of the applicable arrangement) and no more.
(e) By the Company Without Cause . The Executives employment pursuant to this Agreement may be terminated by the Company at any time without Cause by delivery of a Notice of Termination. If the Executives employment is terminated pursuant to this Section 9(e) , the Executive will be entitled to receive (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (ii) the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid, (iii) an amount equal to two hundred percent (200%) of the Executives Base Salary, (iv) an amount equal to two hundred percent (200%) of the Executives average cash bonus paid (or earned, but not yet paid, for the fiscal year immediately preceding the fiscal year in which the Date of Termination occurs) to Executive in respect of the three most recent fiscal years immediately preceding the fiscal year in which the Executives employment terminates hereunder, or, if greater than such average, the bonus paid (or earned, but not yet paid) for the fiscal year immediately preceding the fiscal year in which the Date of Termination occurs (such average or greater amount, the Adjusted Bonus Amount ), (v) health insurance benefits substantially commensurate with the Companys standard health insurance benefits for the Executive and the Executives spouse and dependents through the second anniversary of the Date of Termination; provided , however , that such continued benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis); provided further, that any continued health insurance benefits which are provided under this Agreement (including benefits under Section 9(m)) shall run concurrently with any continuation coverage that the Executive or the Executives spouse and dependents are entitled to under COBRA and any rights (including the length of coverage) that the Executive and the Executives spouse and dependents may be entitled to under COBRA shall not be increased (or extended) due to any continued health insurance benefits which may be provided to the Executive and the Executives spouse or dependents pursuant to this Agreement ; and (vi) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements). The amounts referred to in clauses (i) through (iv) above will be paid to the Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion. As a condition to receiving such payment, the Executive agrees to execute, deliver and not revoke a general release in the form attached as Exhibit A .
(f) By the Executive for Good Reason . The Executives employment pursuant to this Agreement may be terminated by the Executive by written notice of his resignation ( Notice of Resignation ) delivered to the Company within two (2) years of any of the following (each of which will constitute Good Reason for resignation): (i) a material reduction by the Company in the Executives title or position, or a material reduction by the Company in the Executives authority, duties or responsibilities (including, without limitation, Executive no longer serving on the Companys board of directors), or the assignment by the Company to the Executive of any duties or responsibilities that are materially inconsistent with such title, position, authority, duties or responsibilities; (ii) a material
4
reduction in Base Salary; (iii) any material breach of this Agreement by the Company; or (iv) the Companys requiring the Executive to relocate his office location more than fifty (50) miles from Nashville, Tennessee. For avoidance of doubt, Good Reason will exclude the death or Disability of the Executive. In order for the Executive to be entitled to resign for Good Reason under this Section 9(f) the following conditions must be met: (A) the Executive shall notify the Company of the existence of a condition described in (i), (ii), or (iii) within 90 days of the initial existence of the condition; (B) the Company shall be entitled to remedy the condition within 30 days of receiving such notice; and (C) the Company shall have failed to remedy the condition during such time period. If the Executive resigns for Good Reason pursuant to this Section 9(f) , the Executive will be entitled to receive (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (ii) the amount of any cash bonus related to any Contract Year ending before the Date of Termination that has been earned but remains unpaid, (iii) an amount equal to two hundred percent (200%) of the Executives Base Salary, (iv) an amount equal to two hundred percent (200%) of the Adjusted Bonus Amount, (v) health insurance benefits substantially commensurate with the Companys standard health insurance benefits for the Executive and the Executives spouse and dependents through the second anniversary of the Date of Termination; provided , however , that such continued benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis); provided further, that any continued health insurance benefits which are provided under this Agreement (including benefits under Section 9(m)) shall run concurrently with any continuation coverage that the Executive or the Executives spouse and dependents are entitled to under COBRA and any rights (including the length of coverage) that the Executive and the Executives spouse and dependents may be entitled to under COBRA shall not be increased (or extended) due to any continued health insurance benefits which may be provided to the Executive and the Executives spouse or dependents pursuant to this Agreement, and (vi) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements). The amounts referred to in clauses (i) through (iv) above will be paid to the Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion. As a condition to receiving such payment, the Executive agrees to execute, deliver and not revoke a general release in the form attached as Exhibit A .
(g) By the Executive Without Good Reason . The Executives employment pursuant to this Agreement may be terminated by the Executive at any time by delivery of a Notice of Resignation to the Company. If the Executives employment is terminated pursuant to this Section 9(g) , the Executive will receive all Base Salary and benefits (including any earned but unpaid cash bonus) to be paid or provided to the Executive under this Agreement through the Date of Termination (such amounts shall be paid within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion), any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (including, without limitation, the amount of any cash bonus related to any year ending before the Date of Termination which has been earned but remains unpaid, with such benefits to be paid in accordance with the applicable provisions of the applicable arrangement) and no more.
(h) Following a Change in Control . If, within thirty-six (36) months following a Change in Control, the Executive (i) is terminated without Cause, or (ii) resigns for Good Reason (as defined and qualified in Section 9(f) above), then the Executive will be entitled to receive (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (ii) the amount of any cash bonus related to any year ending before the Date of Termination that has been earned but remains unpaid, (iii) an amount equal to two hundred ninety-nine percent (299%)
5
of the Adjusted Bonus Amount, (iv) an amount equal to two hundred ninety-nine percent (299%) of the Executives Base Salary, (v) notwithstanding anything to the contrary in any equity incentive plan or agreement, all equity incentive awards which are then outstanding, to the extent not then vested, shall vest, (vi) health insurance benefits substantially commensurate with the Companys standard health insurance benefits for the Executive and the Executives spouse and dependents through the third anniversary of the Date of Termination; provided , however , that such continued benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis); provided further, that any continued health insurance benefits which are provided under this Agreement (including benefits under Section 9(m)) shall run concurrently with any continuation coverage that the Executive or the Executives spouse and dependents are entitled to under COBRA and any rights (including the length of coverage) that the Executive and the Executives spouse and dependents may be entitled to under COBRA shall not be increased (or extended) due to any continued health insurance benefits which may be provided to the Executive and the Executives spouse or dependents pursuant to this Agreement, and (vii) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination (such benefits shall be paid in accordance with the provisions of the applicable arrangements). The amounts referred to in clauses (i) through (iv) above will collectively be referred to as the Change in Control Severance Amount . The Change in Control Severance Amount will be paid to the Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion. The Executive agrees to execute, deliver and not revoke a general release in the form attached as Exhibit A . Payments pursuant to this Section 9(h) will be made in lieu of, and not in addition to, any payment pursuant to any other paragraph of this Section 9 .
(i) Date of Termination . The Executives Date of Termination will be (i) if the Executives employment is terminated pursuant to Section 9(b) , the date of his death, (ii) if the Executives employment is terminated pursuant to Section 9(c) , Section 9(d) or Section 9(e) , the date on which a Notice of Termination is given, (iii) if the Executives employment is terminated pursuant to Section 9(f) , the date specified in the Notice of Resignation, (iv) if the Executives employment is terminated pursuant to Section 9(g) , the date specified in the Notice of Resignation ( provided that the Executive will deliver such Notice of Resignation to the Company not less than thirty (30) days before the Date of Termination specified therein), or (v) if the Executives employment is terminated pursuant to Section 9(h) , the date specified in the Notice of Termination or the Notice of Resignation, as applicable.
(j) For the purposes of this Agreement, a Change in Control will mean any of the following events:
(i) any person or entity, including a group as defined in Section 13(d)(3) of the Exchange Act, other than the Company or a wholly-owned subsidiary thereof or any employee benefit plan of the Company or any of its subsidiaries, becomes the beneficial owner of the Companys securities having 35% or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business); or
(ii) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sales of all or substantially all assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of the Company or any successor company or entity entitled to vote generally in the election of the directors of the Company or a successor company or entity after such transaction are held in the aggregate by the holders of the Companys securities entitled to vote generally in the election of directors of the Company immediately prior to such transaction; or
6
(iii) during any period of two consecutive years, individuals who at the beginning of any such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Companys shareholders, of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the Subject Person ) acquired beneficial ownership of more than the permitted amount of the outstanding voting securities as a result of the acquisition of voting securities by the Company which, by reducing the number of voting securities outstanding, increased the proportional number of shares beneficially owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the beneficial owner of any additional voting securities, then a Change in Control shall occur.
(k) Delay of Payment Required by Section 409A of the Code . It is intended that (i) each payment or installment of payments provided under this Agreement will be a separate payment for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the Code ) and (ii) that the payments will satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code, including those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term deferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two-year exception), and 1.409A-1(b)(9)(v) (regarding reimbursements and other separation pay). Notwithstanding anything to the contrary in this Agreement, if the Company determines (i) that on the date the Executives employment with the Company terminates or at such other time that the Company determines to be relevant, the Executive is a specified employee (as such term is defined under Treasury Regulation 1.409A-1(i)) of the Company and (ii) that any payments to be provided to the Executive pursuant to this Agreement are or may become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code if provided at the time otherwise required under this Agreement, then such payments will be delayed until the date that is six (6) months after the date of the Executives separation from service (as such term is defined under Treasury Regulation 1.409A-1(h)) with the Company. Any payments delayed pursuant to this Section 9(k) will be made in a lump sum on the first day of the seventh month following the Executives separation from service (as such term is defined under Treasury Regulation 1.409A-1(h)) and any remaining payments, if applicable, required to be made under this Agreement will be paid upon the schedule otherwise applicable to such payments under the Agreement. In addition, to the extent that any reimbursement, fringe benefit or other, similar plan or arrangement in which the Executive participates during the term of Executives employment under this Agreement or thereafter provides for a deferral of compensation within the meaning of Section 409A of the Code, (i) the amount eligible for reimbursement or payment under such plan or arrangement in one calendar year may not affect the amount eligible for reimbursement or payment in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid), and (ii) subject to any shorter time periods provided herein or the applicable plans or arrangements, any reimbursement or payment of an expense under such plan or arrangement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred.
(l) Other Agreements . This Agreement does not replace or supersede the Executives Amended and Restated Salary Continuation Agreement with the Company. No reduction of amounts to be paid hereunder shall be made with respect to amounts of any payments made under the Salary Continuation Agreement.
7
(m) Insurance . In the event of termination under subsections 9(a) , (c) , (e) , (f) , (g) , or (h) , where the Executive does not obtain substantially similar health insurance coverage from a subsequent employer as set forth in such subsections, after the period for the provision of required health insurance coverage by the Company at its cost under such subsections, the Company shall, while Executive is living, use its commercially reasonable efforts to make available to the Executive health insurance benefits for the Executive and his spouse and dependents under the Companys then-existing health insurance plan, at the Executives expense and at no additional cost to the Company; ; provided that if any person covered under this Section 9(m) is eligible for coverage under Medicare or any similar federal health benefits program, to the extent permitted by applicable law and not specifically contrary to the Companys health insurance plan, such Medicare coverage shall be primary.
10. Representations .
(a) The Company represents and warrants that this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms.
(b) The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement.
11. Assignment; Binding Agreement . This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement will inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, will be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or, if there is no such designee, to his estate.
12. Confidentiality; Non-Solicitation; Non-Competition .
(a) Non-Solicitation . The Executive agrees that for a period of one (1) year after the Date of Termination if the Executive receives a payment under Section 9(e) , Section 9(f) or Section 9(h) , the Executive will not directly or indirectly solicit, on his own behalf or on behalf of any other person or entity, the services of any person who is an executive officer of the Company or solicit any of the Companys executive officers to terminate their employment or agency with the Company, except with the Companys express written consent.
(b) Non-competition. So long as Executive remains employed by the Company, Executive shall not compete, directly or indirectly, with the Company. For a period of twelve (12) months following termination of Executives employment with the Company (the Non-compete Period ) if the Executive receives a payment under Section 9(e) , Section 9(f) or Section 9(h) , the Executive shall not enter into or engage in any business that consists of a casual dining restaurant concept whose menu is substantially similar to the Companys menu in a geographic market where the Company operates a restaurant at the time of the termination of the Executive (the Company Business ). For the purposes of this subsection (b) , Executive understands that he shall be competing if he engages in any or all of the
8
activities set forth herein directly as an individual on his own account, or indirectly as a partner, joint venturer, employee, agent, consultant, officer and/or director of any firm, association, corporation, or other entity, or as a stockholder of any corporation in which Executive owns, directly or indirectly, individually or in the aggregate, more than one percent (1%) of the outstanding stock; provided , however , that at such time as he is no longer employed by the Company, Executives direct or indirect ownership as a stockholder of less than five percent (5%) of the outstanding stock of any publicly traded corporation shall not by itself constitute a violation of this subsection (b) .
(c) The parties intend that each of the covenants contained in this Section 12 will be construed as a series of separate covenants relating to jurisdictions in which the Company may have a restaurant, one for each state of the United States, each county of each state of the United States. Except for geographic coverage, each such separate covenant will be deemed identical in terms to the covenant contained in the preceding subsections of this Section 12 . If, in any judicial proceeding, a court will refuse to enforce any of the separate covenants (or any part thereof) deemed included in those subsections, then such unenforceable covenant (or such part) will be deemed eliminated from this Agreement for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. In the event that the provisions of this Section 12 should ever be deemed to exceed the time or geographic limitations, or the scope of this covenant is ever deemed to exceed that which is permitted by applicable law, then such provisions will be reformed to the maximum time, geographic limitations or scope, as the case may be, permitted by applicable law. The unenforceability of any covenant in this Section 12 will not preclude the enforcement of any other of said covenants or provisions of any other obligation of the Executive or the Company hereunder, and the existence of any claim or cause of action by the Executive or the Company against the other, whether predicated on the Agreement or otherwise, will not constitute a defense to the enforcement by the Company of any of said covenants.
(d) If the Executive will be in violation of any provision of this Section 12 , then each time limitation set forth in this Section 12 will be extended for a period of time equal to the period of time during which such violation or violations occur. If the Company seeks injunctive relief from such violation in any court, then the covenants in this Section 12 will be extended for a period of time equal to the pendency of such proceedings, including all appeals by the Executive.
13. Confidentiality .
(a) During the Term and at any time thereafter, Executive shall not disclose, furnish, disseminate, make available or, except in the ordinary course of performing his duties on behalf of the Company, use any trade secrets or confidential business and technical information of the Company, or its parent, subsidiaries or affiliated entities without limitation as to when it was acquired by Executive or whether it was compiled or obtained by, or furnished to Executive while he was employed by the Company. Such trade secrets and confidential business and technical information are considered to include, without limitation, development plans, financial statistics, research data, or any other statistics and plans contained in monthly and annual review books, profit plans, capital plans, critical issues plans, strategic plans, or marketing, real estate, or restaurant operations plans. Executive specifically acknowledges that all such information, whether reduced to writing or maintained in Executives mind or memory and whether compiled by the Company and/or Executive derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been put forth by the Company to maintain the secrecy of such information, that such information is and shall remain the sole property of the Company and that any retention and use of such information during or after the termination of Executives relationship with the Company (except in the course of Executives performance of his duties) shall constitute a misappropriation of the Companys trade secrets.
9
(b) The above restrictions on disclosure and use of confidential information shall not prevent Executive from: (i) using or disclosing information in the good faith performance of his duties on behalf of the Company; (ii) using or disclosing information to another employee to whom disclosure is required to perform in good faith the duties of either person on behalf of the Company; (iii) using or disclosing information to another person or entity bound by a duty or an agreement of confidentiality as part of the performance in good faith of Executives duties on behalf of the Company or as authorized in writing by the Company; (iv) at any time after the period of Executives employment using or disclosing information to the extent such information is, through no fault or disclosure of Executive, generally known to the public; (v) using or disclosing information which was not disclosed to Executive by the Company or otherwise during the period of Executives employment which is then disclosed to Executive after termination of Executives employment with the Company by a third party who is under no duty or obligation not to disclose such information; or (vi) disclosing information as required by law. If Executive becomes legally compelled to disclose any of the confidential information, Executive shall (i) provide the Company with reasonable prior written notice of the need for such disclosure such that the Company may obtain a protective order; (ii) if disclosure is required, furnish only that portion of the confidential information which, in the written opinion of Executives counsel delivered to the Company, is legally required; and (iii) exercise reasonable efforts to obtain reliable assurances that confidential treatment shall be accorded to the confidential information.
14. Company Remedies . The Executive acknowledges and agrees that the restrictions and covenants contained in this Agreement are reasonable and necessary to protect the legitimate interests of the Company and that the services to be rendered by him hereunder are of a special, unique and extraordinary character. To that end, in the event of any breach by the Executive of Section 12 or Section 13 hereof, the Executive agrees that the Company would be entitled to injunctive relief, which entails that (i) it would be difficult to replace the Executives services; (ii) the Company would suffer irreparable harm that would not be adequately compensated by monetary damages and (iii) the remedy at law for any breach of any of the provisions of Section 12 or Section 13 may be inadequate. The Executive further acknowledges that legal counsel of his choosing has reviewed this Agreement, that the Executive has consulted with such counsel, and that he agrees to the terms herein without reservation. Accordingly, the Executive specifically agrees that the Company will be entitled, in addition to any remedy at law or in equity, to (i) retain any and all payments not yet paid to him under this Agreement in the event of any breach by him of his covenants under Sections 12 and 13 hereunder, (ii) in the event of such breach, recover an amount equal to the after-tax payments previously made to the Executive under Section 9(e)(iii) , 9(e)(iv) , 9(f)(iii) , 9(f)(iv) , or 9(h)(iii) , 9(h)(iv) , and (iii) obtain preliminary and permanent injunctive relief and specific performance for any actual or threatened violation of Section 12 or Section 13 of this Agreement. This provision with respect to injunctive relief will not, however, diminish the right to claim and recover damages, or to seek and obtain any other relief available to it at law or in equity, in addition to injunctive relief.
15. Certain Additional Payments by the Company .
(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, if it will be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 15 ) (a Payment ) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the Excise Tax ), then the Executive will be entitled to receive an additional payment (a Gross-Up Payment ) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties
10
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, and taking account of any withholding obligation on the part of the Company, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 15(c) , all determinations required to be made under this Section 15 , including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be used in arriving at such determination, will be made by the Companys regular certified public accounting firm (the Accounting Firm ), which will provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. If the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the applicable Change in Control, the Company will appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm will then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm will be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 15 , will be paid by the Company to the Executive, net of any of the Companys federal or state withholding obligations with respect to such Payment, within five (5) days of the receipt of the Accounting Firms determination. Any determination by the Accounting Firm will be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made ( Underpayment ), consistent with the calculations required to be made hereunder. If the Company exhausts its remedies pursuant to Section 15(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm will determine the amount of the Underpayment that has occurred and any such Underpayment will be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive will notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment (or an additional Gross-Up Payment). Such notification will be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and will apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive will not pay such claim before the expiration of the thirty-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing before the expiration of such period that it desires to contest such claim, the Executive will:
(i) give the Company any information reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim as the Company will reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such claim; provided , however , that the Company will bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and will indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and
11
expenses. Without limitation of the foregoing provisions of this Section 15(c) , the Company will control all proceedings taken in connection with such contest (to the extent applicable to the Excise Tax and the Gross-Up Payment) and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company will determine; provided , however , that if the Company directs the Executive to pay such claim and sue for a refund, the Company will advance the amount of such payment to the Executive, on an interest-free basis and will indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided , further , that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Companys control of the contest will be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive will be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 15(c) , the Executive becomes entitled to receive any refund with respect to such claim, the Executive will (subject to the Companys complying with the requirements of Section 15(c) ) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 15(c) , a determination is made that the Executive will not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund before the expiration of thirty (30) days after such determination, then such advance will be forgiven and will not be required to be repaid and the amount of such advance will offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
(e) Notwithstanding any other provision of this Section 15 , any Gross-Up Payment or Underpayment due to the Executive hereunder will be paid in accordance with this Section 15 , but in no event may any such payments be made later than December 31 of the year following the year (i) any excise tax is paid to the Internal Revenue Service regarding this Section 15 or (ii) any tax audit or litigation brought by the Internal Revenue Service or other relevant taxing authority related to this Section 15 is completed or resolved.
16. Entire Agreement . This Agreement and the equity incentive and benefit plans and agreements referenced herein contain all the understandings between the parties hereto pertaining to the matters referred to herein, and supersede any other undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. To the extent that any term or provision of any other document or agreement executed by the Executive with or for the Company during the Term of this Agreement conflicts or is inconsistent with this Agreement, the terms and conditions of this Agreement shall prevail and supersede such inconsistent or conflicting term or provision.
17. Amendment, Modification or Waiver . No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.
12
18. Notices . Any notice to be given hereunder will be in writing and will be deemed given when delivered personally, sent by courier or facsimile (if a facsimile number is set forth) or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice hereunder in writing:
Any notice delivered personally or by courier under this Section 18 will be deemed given on the date delivered and any notice sent by facsimile or registered or certified mail, postage prepaid, return receipt requested, will be deemed given on the date transmitted by facsimile or five days after post-marked if sent by U.S. mail.
19. Severability . If any provision of this Agreement or the application of any such provision to any party or circumstances will be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, will not be affected thereby, and each provision hereof will be validated and will be enforced to the fullest extent permitted by law.
20. Governing Law . This Agreement will be governed by and construed under the internal laws of the State of Tennessee, without regard to its conflict of laws principles.
21. Jurisdiction and Venue . This Agreement will be deemed performable by all parties in, and venue will exclusively be in the state or federal courts located in the State of Tennessee. The Executive and the Company hereby consent to the personal jurisdiction of these courts and waive any objections that such venue is objectionable or improper.
22. Headings . All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.
13
23. Withholding . All payments to the Executive under this Agreement will be reduced by all applicable withholding required by federal, state or local law.
24. Counterparts . This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
25. Expenses Incurred in Enforcing this Agreement . The Executive shall be entitled to reimbursement of costs and expenses (including reasonable attorneys fees) incurred by the Executive or his heirs or executors in connection with any claim or proceeding to enforce this Agreement by Executive.
26. Tax Matters . By accepting this Agreement, Executive hereby agrees and acknowledges that neither the Company nor its subsidiaries make any representations with respect to the application of Section 409A of the Code to any tax, economic or legal consequences of any payments payable to the Executive hereunder (including, without limitation, payments pursuant to Section 9 above). Further, by the acceptance of this Agreement, the Executive acknowledges that (i) Executive has obtained independent tax advice regarding the application of Section 409A of the Code to the payments due to the Executive hereunder, (ii) Executive retains full responsibility for the potential application of Section 409A of the Code to the tax and legal consequences of payments payable to the Executive hereunder and (iii) the Company shall not indemnify or otherwise compensate the Executive for any violation of Section 409A of the Code that may occur in connection with this Agreement (including, without limitation, payments pursuant to Section 9 above). The parties agree to cooperate in good faith to amend such documents and to take such actions as may be necessary or appropriate to comply with Code Section 409A.
[Signature Page Follows]
14
IN WITNESS WHEREOF , the parties hereto have executed this Employment Agreement effective as of date set forth above.
J. ALEXANDERS CORPORATION |
By: /s/ Lonnie J. Stout |
Name: Lonnie J. Stout |
Title: Chairman, Chief Executive Officer and President |
EXECUTIVE |
/s/ Mark A. Parkey |
Mark A. Parkey |
15
Exhibit 10.20
AMENDED AND RESTATED SALARY CONTINUATION AGREEMENT
This Amended and Restated Salary Continuation Agreement (Agreement), which supersedes and cancels any previously dated Salary Continuation Agreements, is made and entered into as of this 26th day of December, 2008, by and between J. Alexanders Corporation, a Tennessee corporation with its principal office in Nashville, Tennessee (the Corporation), and Mark A. Parkey, a resident of Franklin, Tennessee (Employee).
For and in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
1. Recitals . The Corporation values the efforts, abilities and accomplishments of Employee in the performance of his duties as an employee of the Corporation, and the Corporation recognizes the importance of Employee as a member of the management of the Corporation. In order to induce the continued employment with the Corporation of Employee, Corporation is willing to provide the benefits contained in this Agreement, and Employee accepts these benefits as a material part of his employment with the Corporation.
2. Definitions .
a. Base Salary for purposes of calculating a benefit hereunder as of a specific date shall be the greater of (i) the Employees actual annual base salary in effect as of that date or (ii) the average of the Employees annual base salary for the three full fiscal years immediately preceding the Separation from Service.
b. Beneficiary or Beneficiaries shall mean the person(s) designated as the Employees beneficiary or beneficiaries in an election form filed by the Employee with the Corporation, or in the absence of such designation, the Employees Beneficiary shall be deemed to be the Employees estate.
c. Change in Control shall mean a change in control of the Corporation as defined in Section 2(g) of the J. Alexanders Corporation Amended and Restated 2004 Equity Incentive Plan.
d. Code shall mean the Internal Revenue Code of 1986, as amended from time to time. References to any section of the Internal Revenue Code shall include any successor provision thereto.
e. Conversion Interest Rate shall mean seven percent (7%).
f. Employees Early Retirement Date shall mean the date of the Employees Separation from Service before attaining his Normal Retirement Age, for reasons other than death.
g. Employees Normal Retirement Date shall mean the date of the Employees Separation from Service on or after the Employee attaining his Normal Retirement Age.
h. ERISA shall mean the Employee Retirement Income Security Act of 1974.
i. Normal Retirement Age shall mean the date the Employee attains age 65.
j. Qualified Change in Control shall mean a change in the ownership or effective control of the Corporation, or a change in the ownership of a substantial portion of the assets of the Corporation as defined in Treasury Regulation 1.409A-3(i)(5).
k. Separation from Service shall mean a separation from service as defined in Treasury Regulation 1.409A-1(h). Pursuant to Treasury Regulation 1.409A-1(h), a Separation from Service shall occur on the date the Corporation and the Employee reasonably anticipate that no further services will be performed after a certain date or that the level of bona fide services the Employee will perform after such date (whether as an Employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the Corporation if the Employee has been providing services to the Corporation for less than thirty-six (36) months).
l. Treasury Regulations(s) shall mean the regulations promulgated by the Treasury Department under the Code.
Other terms may be defined in sections of this Agreement where such terms are used.
3. Normal Retirement Benefit . In the event of the Employees Separation from Service from the Corporation for any reason other than death on or after the date on which the Employee attains his Normal Retirement Age, then the Corporation shall pay to Employee an annual benefit equal to fifty percent (50%) of the Employees Base Salary as of the Employees Normal Retirement Date (the Normal Retirement Benefit). The Normal Retirement Benefit shall be payable to the Employee in equal monthly installments, for a period of fifteen (15) years (one-hundred eighty (180) payments) (the Normal Retirement Benefit Payment Period). The Normal Retirement Benefit shall commence within thirty (30) days of the Employees Normal Retirement Date (with the date of the initial payment within such period determined by the Corporation in its sole discretion) and shall continue until the expiration of the Normal Retirement Benefit Payment Period.
4. Termination of Employment Prior to Normal Retirement Age . In the event of the Employees Separation from Service before the Employees Normal Retirement Age for reasons other than death, the Corporation shall pay to the Employee a lump sum amount (the Vested Benefit), as follows. Where such Separation from Service occurs prior to the close of business on December 26, 2008, the Vested Benefit shall be a lump sum equal to the amount on Exhibit A applicable to 2008. For each day beginning at the close of business on December 26, 2008 until and including the close of business on December 31, 2008, with respect to a Separation from Service as of such times, the Vested Benefit payable in a lump sum shall increase by one-sixth of
2
the difference between the computed Vested Benefit applicable on January 1, 2009 and the amount on Exhibit A applicable to 2008. Where such Separation from Service occurs on or after January 1, 2009, the Vested Benefit shall be a lump sum equal to the present value as of the date of payment of an annual benefit equal to fifty percent (50%) of the Employees Base Salary as of the Employees Early Retirement Date, payable in equal monthly installments for a period of fifteen (15) years (one-hundred eighty (180) payments) commencing on the date the Employee attains his Normal Retirement Age. The present value calculation of the Vested Benefit shall use a discount rate equal to the Conversion Interest Rate. Notwithstanding the foregoing, if the amount payable under this Section 4 as the Vested Benefit is less than the designated dollar amount on attached Exhibit A as the vested amount that would apply on the relevant date of termination (the Minimum Lump Sum), then the Minimum Lump Sum shall be paid in lieu thereof. The Vested Benefit shall be paid within thirty (30) days of the Employees Early Retirement Date, with the date of such payment within such period determined by the Corporation in its sole discretion. Notwithstanding any other provision of this Agreement to the contrary, the Employee may modify the time and form of the payment of benefits due to the Employee for a Separation from Service on or after January 1, 2009 under this Section 4 by notifying the Corporation that the Employee elects, in lieu of payment of the Vested Benefit as a lump sum, payment of the Vested Benefit as an annual benefit equal to fifty percent (50%) of the Employees Base Salary as of the Employees Early Retirement Date, paid in equal monthly installments for a period of fifteen (15) years (one-hundred eighty (180) payments) commencing on the later of the date the Employee attains his Normal Retirement Age and the date that is five years after Separation from Service; provided such modification shall not take effect until at least twelve (12) months after the date the modification is made. If an attempted modification does not meet the requirements of the preceding sentence, then it shall be void, and the time and form of payment in effect with regard to the Employees benefits under the Agreement prior to such attempted modification shall remain effective.
5. Death Benefit .
a. Death Prior to the Employees Normal Retirement Age . If Employee dies while employed by the Corporation prior to attaining his Normal Retirement Age, the Corporation shall pay a salary continuation benefit, as set forth below, for a period ending on the date on which the Employee would have attained his Normal Retirement Age or ten years (one-hundred twenty (120) payments) from the date of the Employees death, whichever is longer (the Death Benefit Payment Period). Such benefits shall (i) be payable in equal monthly installments to the Employees Beneficiary; (ii) commence within thirty (30) days of the Employees death (with the date of the initial payment within such period determined by the Corporation in its sole discretion) and (iii) shall continue until the expiration of the Death Benefit Payment Period. The annual salary continuation benefit for the first full year following the death of Employee shall be one-hundred percent (100%) of the Employees Base Salary in effect hereunder as of the Employees death. Thereafter, for the remainder of the Death Benefit Payment Period, the annual salary continuation benefit shall be fifty percent (50%) of the Employees Base Salary in effect hereunder as of the Employees death.
3
b. Death after Normal Retirement Age, but prior to the Employees Normal Retirement Date . If the Employee dies after attaining his Normal Retirement Age, but prior to the Employees Normal Retirement Date, the Employees Beneficiary shall receive the Employees Normal Retirement Benefit calculated as if the Employee had experienced a Separation from Service as of his date of death. Such benefits shall commence within thirty (30) days of the Employees death (with the date of the initial payment within such period determined by the Corporation in its sole discretion) and shall continue for the Normal Retirement Payment Period.
c. Death after the Commencement of Benefits . If the Employee dies after his benefit payments have commenced in installments under the applicable Section of this Agreement, the installment payments shall continue to be paid to the Employees Beneficiary in the same manner and at the same times as they would have been paid to the Employee had he survived.
6. Delay of Payments Pursuant to Section 409A of the Code . Notwithstanding anything to the contrary in this Agreement, if (i) the Employee is a specified employee (as such term is defined under Treasury Regulation 1.409A-1(i)) of the Corporation on the date of the Employees Separation from Service and (ii) in connection with such Separation From Service any payments to be provided to the Employee pursuant to this Agreement are or may become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code if provided at the time otherwise required under this Agreement, then such payments shall be delayed until the date that is six (6) months after the date of the Employees Separation from Service from the Corporation, or, if earlier, the date of the Employees death. Any payments delayed pursuant to this Section 6 shall be made in a lump sum on the first day of the seventh month following the Employees Separation from Service or, if earlier, the date of the Employees death, and any remaining payments, if applicable, required to be made under this Agreement will be paid upon the schedule otherwise applicable to such payments under the Agreement.
7. Funding upon a Change in Control . Upon a Change in Control, the Corporation shall establish a rabbi trust in accordance with Revenue Procedure 92-64 and subsequent guidance published by the Internal Revenue Service (the Trust) and shall contribute an amount sufficient based on projected benefits to fund the Employees Normal Retirement Benefit. The amount of any such contribution shall include any investment vehicles (such as Corporation-owned insurance contracts on the life of the Employee) previously established by the Corporation in connection with the proposed funding of benefits. Further, the Corporation shall have an ongoing obligation to continue to make contributions to the rabbi trust in an amount sufficient to fund the Employees Normal Retirement Benefit until the Employee receives the full amount of the benefit he is entitled to receive under the Agreement. The calculation of the funding of the Employees Normal Retirement Benefit shall be determined by an actuary or accountant chosen by the Corporation and such calculation must be completed prior to the closing of any such Change in Control. The calculation shall thereafter be performed no less often than annually in order to calculate whether additional contributions are necessary. The actuary or accountant chosen by the Corporation shall utilize the following principal assumptions when determining the funding required by this Section 7 at the time any calculation is performed: (i) an interest rate equal to the Conversion Interest Rate; (ii) a turnover rate of zero;
4
(iii) an assumption that the Employee will remain employed until his Normal Retirement Date; and (iv) a four and one-half percent (4.5%) annual increase in Base Salary above the Base Salary used to calculate benefits hereunder at the time any calculation is performed. The Corporation may not remove funds which have previously been contributed to the Trust at any time, except to the extent necessary to pay the benefits due under this Agreement. Notwithstanding the foregoing, the assets of the Trust shall at all times remain subject to the claims of general creditors of the Corporation in the event of its insolvency as more fully described in the Trust. Notwithstanding the fact that a Trust shall be established under this Section 7 upon a Change in Control, the Corporation shall remain liable for paying the benefits under this Agreement. However, any payment of benefits to the Employee or his Beneficiary made by such Trust shall satisfy the Corporations obligation to make such payment to such person. Upon satisfaction of the Corporations obligation to make any and all benefit payments to the Employee or his Beneficiary, such Trust shall terminate, and any remaining Trust assets shall be returned to the Corporation. The Trust may contain such other terms and conditions as the Corporation may determine to be necessary or desirable. Notwithstanding the foregoing, the Trust may not be amended or terminated (except as provided in Section 15) upon a Change in Control or thereafter, except to the extent required to ensure the Trust is in compliance with ERISA or the Code.
8. Claims Procedure . If any benefits become payable under this Agreement, the Employee or his designated beneficiary shall file a claim for benefits by notifying the Corporation orally or in writing. If the claim is wholly or partially denied, the Corporation will provide a written notice within ninety (90) days specifying the reason for the denial, the provisions of the Agreement upon which the denial is based, and any additional material or information necessary to receive benefits, if any. Also, such written notice shall indicate the steps to be taken if a review of the denial is desired. If a claim is denied and a review is desired, the Employee or his designated beneficiary shall notify the Corporation in writing within sixty (60) days. In requesting a review, the Employee or beneficiary may review this Agreement, and may submit any written issues and comments he feels are appropriate. The Corporation shall then review the claim and provide a written decision within sixty (60) days stating the specific reasons for the decision and including references to the provisions of the Agreement on which the decision is based. Notwithstanding the foregoing, the Employee shall be entitled to reimbursement of all costs and expenses (including reasonable attorneys fees) incurred by the Employee or his beneficiaries, heirs or executors in connection with any claim or proceeding to enforce this Agreement.
9. Non-Assignable Benefits . Neither the Employee nor his Beneficiary shall have any right to sell, assign, transfer or otherwise convey or encumber the right to receive any benefits hereunder.
10. Other Employment Benefits . Any payments under this Agreement shall be independent of, and in addition to, employment benefits under any other plan, program or agreement which may be in effect between the parties hereto, or any other compensation payable to the Employee or the Employees Beneficiary by the Corporation.
5
11. No Contract of Employment . This Agreement shall not be construed as a contract of employment, nor does it restrict the right of the Corporation to discharge the Employee or the right of the Employee to terminate his employment.
12. Benefits Not Funded . Subject to Section 7 of this Agreement, the Corporation shall be under no obligation whatsoever to purchase or maintain any contract, policy or other asset to provide the benefits under this Agreement. Further, any contract, policy or other asset which the Corporation may utilize to assure itself of the funds to provide the benefits hereunder shall not serve in any way as security to the Employee for the Corporations performance under this Agreement, and Employee shall have no right to, or claim against, such contract or policy. Employee further acknowledges that with respect to the benefits provided under this Agreement, Employees status is that of an unsecured creditor of the Corporation.
13. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee.
14. Amendment .
a. Amendment by the Corporation Prior to a Change in Control . Except as provided in Section 15(a) below, this Agreement may not be altered, amended or revoked prior to a Change in Control, except by a written agreement signed by both parties or as required to comply with ERISA or the Code.
b. Amendment by the Corporation upon or Following a Change in Control . Upon a Change in Control and thereafter, this Agreement may not be altered, amended or revoked by the Corporation under any circumstances, except as required to comply with ERISA or the Code.
15. Termination.
a. Termination by Corporation prior to a Change in Control . This Agreement may be terminated by the Corporation under one of the following conditions:
(1) The Corporation may terminate this Agreement at its sole discretion, provided that:
(i) |
All arrangements sponsored by the Corporation that would be aggregated with this Agreement under Section 1.409A-1(c)(2) of the Treasury Regulations are terminated with respect to all Employees; |
(ii) |
No payments will be made, other than those otherwise payable under the terms of this Agreement absent the Agreements termination, within twelve (12) months of the termination of the Agreement; |
6
(iii) |
All payments due to the Employee under this Agreement will be made within twenty-four (24) months of such termination; |
(iv) |
The Corporation does not adopt a new arrangement that would be aggregated with any terminated arrangement under Section 409A at any time within the three-year period following the date of termination of this Agreement; and |
(v) |
The termination does not occur proximate to a downturn in the financial health of the Corporation. |
(2) The Corporation, at its discretion, may terminate this Agreement within twelve (12) months of a corporate dissolution taxed under Section 331 of the Code, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A), provided that amounts deferred under this Agreement are included in the gross income of Employee in the latest of the following years (or, if earlier, the taxable year in which the amount is actually or constructively received):
(i) |
The calendar year in which the termination of this Agreement occurs; |
(ii) |
The first calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or |
(iii) |
The first calendar year in which the payment is administratively practicable; |
(3) The Corporation may amend this Agreement to provide that termination of the Agreement will occur under such conditions and events as may be prescribed by the Secretary of the Treasury in generally applicable guidance published in the Internal Revenue Bulletin.
If the Corporation terminates this Agreement pursuant to this Section 15(a), the Employee shall be entitled to receive a lump sum payment equal to the present value of the benefit the Employee would have received under the Agreement if he had terminated employment on the date of such termination, which present value shall be determined as of the date of payment using the Conversion Interest Rate as a discount rate. The lump sum payment shall be made in accordance with and at such time as permitted by this Section 15(a) or Section 409A of the Code.
(b) Termination by Corporation upon or Following a Change in Control . Upon a Change in Control and thereafter, this Agreement may not be terminated by the Corporation under any circumstances.
7
16. Guaranty. In the event of a Change in Control, the Corporation shall obtain the guaranty of the Corporations obligations under this Agreement by the acquirer and the ultimate parent entity (based on the majority of voting power and pecuniary interest in the outstanding equity) of the Corporation or its successor after such Change in Control. The failure of the Company to obtain such guaranty of this Agreement as reflected in an endorsement as guarantor of the Corporations obligations hereunder shall constitute a material breach of this agreement by the Corporation.
8
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Salary Continuation Agreement as of the day and year first above written.
J. ALEXANDERS CORPORATION |
||
By: |
/s/ R. Gregory Lewis Chief Financial Officer, Vice-President, Finance |
|
Employee: |
/s/ Mark A. Parkey Mark A. Parkey |
9
Exhibit A
Minimum Lump Sum
Year of Termination |
Amount Vested |
|
2008 |
$131,424 | |
2009 |
150,286 | |
2010 |
169,651 | |
2011 |
189,541 | |
2012 |
209,967 | |
2013 |
230,921 | |
2014 |
251,985 | |
2015 |
273,516 | |
2016 |
295,495 | |
2017 |
317,196 | |
2018 |
339,275 | |
2019 |
361,721 | |
2020 |
384,333 | |
2021 |
407,341 | |
2022 |
430,766 | |
2023 |
454,573 | |
2024 |
478,746 | |
2025 |
503,246 | |
2026 |
528,014 | |
2027 |
553,034 |
10
Exhibit 10.21
J. ALEXANDERS CORPORATION
July 30, 2012
Mark A. Parkey
Nashville, TN
Dear Mark:
This letter amends and restates that certain Letter Agreement, dated as of June 22, 2012, by and between you and J. Alexanders Corporation. This letter describes changes to your Salary Continuation Agreement dated as of December 26, 2008 (the Salary Continuation Agreement ), between you and J. Alexanders Corporation, a Tennessee corporation (including its successors, the Corporation ). Such changes shall be contingent upon the occurrence of, and effective at, the Effective Time (as defined in that certain Amended and Restated Agreement and Plan of Merger, dated as of July 30, 2012, by and among Fidelity National Financial, Inc. ( Parent ), Fidelity Newport Holdings, LLC ( Operating Company ) (for the limited purposes set forth therein), American Blue Ribbon Holdings, Inc. (for the limited purposes set forth therein), Athena Merger Sub, Inc. (for the limited purposes set forth therein), New Athena Merger Sub, Inc. ( Merger Sub ) and the Corporation (as the same may be amended, modified, supplemented and/or restated from time to time in accordance with the terms thereof, the Merger Agreement )).
Pursuant to the Merger Agreement, the Corporation will merge with Merger Sub and become an indirect, wholly owned subsidiary of Parent, and the assets and liabilities of the Corporation, including the Salary Continuation Agreement, will remain obligations of the Corporation.
1. |
Amendment to Suspend/Terminate Certain SCA Obligations . Section 7 of the Salary Continuation Agreement is amended, effective as of the Effective Time, to add the following new sentences at the end thereof to read as follows: |
Notwithstanding any other provision in this Agreement, the obligations of the Corporation under this Section 7 shall be suspended during the period that Fidelity National Financial, Inc.s guarantees under Section 16 of this Agreement are in effect. If and only if Fidelity Newport Holdings, LLC ( Operating Company ) at any time beneficially owns any interest in the Corporation, then : (x) Operating Company shall, and hereby does, at and after any such time also guarantee the performance of the obligations of the Corporation hereunder, which guarantee shall continue in force until all such obligations are satisfied; and (y) in the event that, at or after any such time that the Operating Company becomes the guarantor, Fidelity National Financial, Inc.s direct or indirect beneficial ownership (as defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934 (or any successor rules thereto)) of the Corporation is less than 40%, then: (a) the Corporations obligations under this Section 7 , including, without limitation, the Corporations obligation to establish a rabbi trust with funds provided by the Corporation and the Corporations obligation to make contributions to such trust, shall resume and again be effective from and after such time and (b) Fidelity National Financial, Inc.s guarantee set forth in Section 3 of that certain letter agreement, dated July 30, 2012, as may be amended, modified, supplemented and/or restated from time to time, shall terminate, be released and be of no further force and effect upon the Corporations establishment of a rabbi trust in conformity with the provisions of this Section 7 . In no event shall the occurrence of the events described in clause (y) of the preceding sentence have any effect on the obligations of the Operating Company pursuant to its guarantee made in accordance with the preceding sentence.
2. |
Amendment . The Salary Continuation Agreement shall be amended, effective as of the Effective Time, to provide as follows: |
Each reference to the Corporation herein shall be deemed to refer solely to J. Alexanders Corporation and its successors and permitted assigns.
3. |
Guarantee . Parent shall, and hereby does, contingent on the occurrence of, and effective upon, the Acceptance Time (as defined in the Merger Agreement), guarantee the performance of the obligations of the Corporation under the Salary Continuation Agreement; provided , however , that if and only if Operating Company at any time beneficially owns any interest in the Corporation, then : (x) Operating Company shall, and hereby does, at and after any such time also guarantee the performance of the obligations of the Corporation under the Salary Continuation Agreement, which guarantee shall continue in force until all such obligations are satisfied; and (y) in the event that, at or after any such time that the Operating Company becomes the guarantor, the Parents direct or indirect beneficial ownership (as defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934 (or any successor rules thereto)) of the Corporation is less than 40%, then: (a) the Corporations obligations under Section 7 of the Salary Continuation Agreement shall resume and again be effective and (b) Parents guarantee under this Section 3 shall terminate, be released and be of no further force and effect upon the Corporations establishment of a rabbi trust in conformity with the provisions of such Section 7 of the Salary Continuation Agreement. In no event shall the occurrence of the events described in clause (b) of the preceding sentence have any effect on the obligations of the Operating Company pursuant to its guarantee made in accordance with the preceding sentence. Each of Parent and Operating Company hereby waives diligence, presentment, demand of performance, filing of any claim, any right to require any proceeding first against the Corporation, protest, notice and all demands whatsoever in connection with the performance of its obligations set forth in this Section 3 . If Executive so requests, any such rabbi trust shall be established with the Corporations funds at the Operating Company level. The Executive hereby acknowledges and agrees that, effective immediately upon execution and delivery of this letter agreement, the Executive hereby (i) releases American Blue Ribbon Holdings, Inc. from any and all obligations and liability under this letter and (ii) waives any rights against American Blue Ribbon Holdings, Inc. under this letter. |
4. |
Continuing Force and Effect . Other than the amendments specifically agreed herein, the Salary Continuation Agreement remains in full force and effect. |
5. |
Severability . If any provision of this letter agreement or the application of any such provision to any party or circumstances will be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this letter agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, will not be affected thereby, and each provision hereof will be validated and will be enforced to the fullest extent permitted by law. |
2
6. |
Governing Law . This letter agreement will be governed by and construed under the internal laws of the State of Tennessee, without regard to its conflict of laws principles. |
7. |
Jurisdiction and Venue . This letter agreement will be deemed performable by all parties in, and venue will exclusively be in the state or federal courts located in the State of Tennessee. Each party hereto and future signatory hereby consents to the personal jurisdiction of these courts and waive any objections that such venue is objectionable or improper. |
8. |
Headings . All descriptive headings of Sections and paragraphs in this letter agreement are intended solely for convenience, and no provision of this letter agreement is to be construed by reference to the heading of any section or paragraph. |
9. |
Counterparts . This letter agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. |
10. |
Acknowledgement . The Executive, the Corporation, Parent, Operating Company and Purchaser hereby agree that this letter amends that certain Letter Agreement, dated as of June 22, 2012, by and between you and J. Alexanders on the terms and subject to the conditions of this letter. |
11. |
Successors . This letter agreement is binding on the parties hereto and their successors and permitted assigns. The parties acknowledge that the obligations of the Corporation pursuant to the agreements referenced herein shall be assumed by any original or subsequent transferee of all or substantially all the assets of the Corporation ( Successor ), and any such Successor shall be bound as the Corporation hereunder and pursuant to the agreements referenced herein. |
If you agree to the amendments to your Salary Continuation Agreement set forth above, please sign as indicated on the following page and return a signed copy to the Corporation and to Brent Bickett.
3
In Witness Whereof, the parties hereto have executed this Letter Agreement effective as of the date set forth above.
J. ALEXANDERS CORPORATION |
||
By: |
/s/ Lonnie J. Stout II |
|
Name: |
Lonnie J. Stout II |
|
Title: |
Chairman, President and |
|
Chief Executive Officer |
Acknowledged and Agreed this 30th day of July 2012, by:
/s/ Mark A. Parkey |
Mark A. Parkey |
[Signature Page to Letter Agreement (Mark A. Parkey)]
Acknowledged and Agreed (solely in respect of Sections 1 , 3 and 10 above) this 30th day of July 2012, by:
FIDELITY NEWPORT HOLDINGS, LLC |
||
By: |
/s/ Hazem Ouf |
|
Name: |
Hazem Ouf |
|
Title: |
Chief Executive Officer |
[Signature Page to Letter Agreement (Mark A. Parkey)]
Acknowledged and Agreed (solely in respect of Sections 1 , 3 and 10 above) this 30th day of July 2012, by:
FIDELITY NATIONAL FINANCIAL, INC. |
||
By: |
/s/ Michael L. Gravelle |
|
Name: |
Michael L. Gravelle |
|
Title: |
Executive Vice President, General Counsel |
|
and Corporate Secretary |
[Signature Page to Letter Agreement (Mark A. Parkey)]
Acknowledged and Agreed (solely in respect of Sections 3 and 10 above) this 30th day of July 2012, by:
AMERICAN BLUE RIBBON HOLDINGS, INC. |
||
By |
/s/ Michael L. Gravelle |
|
Name: |
Michael L. Gravelle |
|
Title: |
Executive Vice President, General Counsel |
|
and Corporate Secretary |
[Signature Page to Letter Agreement (Mark A. Parkey)]
Exhibit 10.22
J. ALEXANDERS, LLC
July 1, 2014
Mark A. Parkey
Nashville, TN
Dear Mark:
This letter describes changes to your Amended and Restated Salary Continuation Agreement (the Salary Continuation Agreement ), dated as of December 26, 2008, between you and J. Alexanders, LLC, a Tennessee limited liability company, f/k/a J. Alexanders Corporation (the Company ), and as previously amended pursuant to that certain Letter Agreement, dated as of July 30, 2012, by and among you and the Company, and for certain limited purposes set forth therein, Fidelity Newport Holdings, LLC, Fidelity National Financial, Inc. and American Blue Ribbon Holdings, Inc. Such changes shall be effective upon the date set forth above (the Effective Date ).
1. |
Amendment of Definition of Base Salary in SCA . The definition of Base Salary under Section 2.a. of your Salary Continuation Agreement is amended and restated in its entirety, effective as of the Effective Date, as set forth below: |
a. Base Salary for purposes of calculating a benefit hereunder as of a specific date shall be fixed at $200,000 for purposes hereof and shall not be subject to any increase or decrease.
2. |
Continuing Force and Effect . Other than the amendment specifically agreed herein, the Salary Continuation Agreement remains in full force and effect. |
3. |
Severability . If any provision of this letter agreement or the application of any such provision to any party or circumstances will be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this letter agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, will not be affected thereby, and each provision hereof will be validated and will be enforced to the fullest extent permitted by law. |
4. |
Governing Law . This letter agreement will be governed by and construed under the internal laws of the State of Tennessee, without regard to its conflict of laws principles. |
5. |
Jurisdiction and Venue . This letter agreement will be deemed performable by all parties in, and venue will exclusively be in the state or federal courts located in the State of Tennessee. Each party hereto and future signatory hereby consents to the personal jurisdiction of these courts and waives any objections that such venue is objectionable or improper. |
6. |
Headings . All descriptive headings of sections and paragraphs in this letter agreement are intended solely for convenience, and no provision of this letter agreement is to be construed by reference to the heading of any section or paragraph. |
7. |
Counterparts . This letter agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. |
8. |
Successors . This letter agreement is binding on the parties hereto and their successors and permitted assigns. The parties acknowledge that the obligations of the Company pursuant to the agreements referenced herein shall be assumed by any original or subsequent transferee of all or substantially all the assets of the Company ( Successor ), and any such Successor shall be bound as the Company hereunder and pursuant to the agreements referenced herein. |
If you agree to the amendment to your Salary Continuation Agreement set forth above, please sign as indicated on the following page and return a signed copy to the Company.
In Witness Whereof, the parties hereto have executed this letter agreement effective as of the date set forth above.
J. ALEXANDERS, LLC |
||
By: |
/s/ Lonnie J. Stout II |
|
Name: Lonnie J. Stout II |
||
Title: President and Chief Executive Officer |
Acknowledged and Agreed this 1st day of July 2014, by:
/s/ Mark A. Parkey |
Mark A. Parkey |
[Signature Page to Letter Agreement]
Exhibit 21.1
Subsidiaries of J. Alexanders Holdings, Inc.
as of June 24, 2015
Subsidiary |
Jurisdiction
of
|
Name Under Which Doing Business Other Than Subsidiarys |
||
J. Alexanders Holdings, LLC |
Delaware | N/A | ||
J. Alexanders, LLC |
Tennessee | J. Alexanders Restaurant / Stoney River Steakhouse and Grill | ||
J. Alexanders Restaurants, LLC |
Tennessee | J. Alexanders Restaurant / Redlands Grill | ||
J. Alexanders Restaurants of Kansas, LLC |
Kansas | J. Alexanders Restaurant | ||
J. Alexanders of Texas, LLC |
Texas | J. Alexanders Restaurant | ||
JAX Real Estate, LLC |
Delaware | N/A | ||
Stoney River Management Company, LLC |
Delaware | Stoney River Steakhouse and Grill | ||
Stoney River Legendary Management, L.P. |
Georgia | Stoney River Steakhouse and Grill | ||
SRLS, LLC |
Delaware | Stoney River Steakhouse and Grill | ||
JAX Investments, Inc. |
Delaware | N/A |
Pursuant to Item 601(b)(21) of Regulation S-K, the registrant has omitted some subsidiaries that, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary under Rule 1-02(w) of Regulation S-X as of June 24, 2015.
Exhibit 99.1
Dear Stockholder:
I am pleased to inform you that the board of directors of Fidelity National Financial, Inc. (FNF) has approved the spin-off of our subsidiary, J. Alexanders Holdings, Inc. J. Alexanders Holdings, Inc. owns and operates three complementary upscale dining restaurant concepts. Each holder of FNFV Group common stock (FNFV common stock) will receive 0.16391 shares of J. Alexanders Holdings, Inc. common stock for every one share of FNFV common stock held on [ ], 2015, the record date for this transaction.
The spin-off transaction will separate FNF and J. Alexanders Holdings, Inc. into two distinct businesses with separate ownership and management. We believe this transaction will better enable both companies to capitalize on significant opportunities for growth. FNF will continue to focus on its title insurance, mortgage servicing technology, and other businesses. J. Alexanders Holdings, Inc. will emerge as an independent, publicly-owned company and pursue its growth strategies and prioritize investment spending as it sees fit, without having to compete for capital or senior management resources with other FNF businesses. This transaction will provide holders of FNFV common stock with separate and distinct ownership interests in both FNF and J. Alexanders Holdings, Inc., each with management teams focused on the unique needs and opportunities of their respective businesses. Certain executives of FNF will continue to provide consulting services to J. Alexanders Holdings, Inc. pursuant to a Management Consulting Agreement described in the attached information statement.
The spin-off transaction will be in the form of a pro rata dividend to holders of FNFV common stock. The dividend will represent 100% of the common stock of J. Alexanders Holdings, Inc. owned by FNF. FNF currently owns 87.44% of the issued and outstanding shares of capital stock J. Alexanders Holdings, Inc.
Holders of FNFV common stock are not required to vote on or take any other action in connection with the spin-off transaction. Accordingly, you do not need to take any action to receive the shares of common stock of J. Alexanders Holdings, Inc. to which you will be entitled as a holder of FNFV common stock. You do not need to pay any consideration or surrender or exchange your shares of FNFV common stock in connection with the spin-off transaction.
We expect that the spin-off transaction will be tax-free to stockholders and intend to complete the spin-off transaction only if we receive a favorable opinion of our tax advisor confirming the spin-off transactions tax-free status. The spin-off is also subject to other conditions, including the approval of the listing of the common stock of J. Alexanders Holdings, Inc. on The New York Stock Exchange.
We encourage you to read the attached information statement, which is being provided to all holders of FNFV common stock. It describes the spin-off transaction in detail and contains important business and financial information about J. Alexanders Holdings, Inc.
We believe the spin-off transaction is a positive event for our businesses and our stockholders. We look forward to your continued support as a stockholder of FNF and remain committed to working on your behalf to build long-term stockholder value.
Sincerely,
Raymond R. Quirk
Chief Executive Officer
[ ], 2015
Dear Future J. Alexanders Holdings, Inc. Stockholder,
On behalf of the entire team at J. Alexanders Holdings, Inc., I want to welcome you as a future stockholder. Our business consists of three complementary upscale dining restaurant concepts: J. Alexanders, Redlands Grill and Stoney River Steakhouse and Grill. For more than 20 years, the J. Alexanders team has provided its guests a quality dining experience with a contemporary American menu and high levels of customer service in restaurants with an attractive ambiance. As of the date hereof, we operate 41 locations across 14 states. During recent years, we have increased the number of restaurants we operate, increased same store sales and expanded our geographic reach.
As an independent, publicly-owned company, we believe we can more effectively execute on our strategic plans and deliver long-term value to you as a stockholder.
I encourage you to learn more about J. Alexanders Holdings, Inc. and the strategies we are pursuing by reading the attached information statement. We look forward to our future as an independent, public company and your continued support as a J. Alexanders Holdings, Inc. stockholder.
Sincerely,
Lonnie J. Stout II
President and Chief Executive Officer
[ ], 2015
Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the United States Securities and Exchange Commission under the United States Securities Exchange Act of 1934, as amended.
Preliminary and Subject to Completion, Dated June 24, 2015
INFORMATION STATEMENT
Distribution of Common Stock of
J. Alexanders Holdings, Inc.
Fidelity National Financial, Inc. (FNF) is furnishing this information statement to the holders of FNFV Group common stock (FNFV common stock) in connection with the distribution by FNF to the holders of FNFV common stock of all of the issued and outstanding shares of common stock, par value $0.01 per share, of J. Alexanders Holdings, Inc. held by FNF.
In this distribution, FNF will distribute the shares of J. Alexanders Holdings, Inc. common stock on a pro rata basis to the holders of FNFV common stock. As a holder of FNFV common stock, you will receive 0.16391 shares of J. Alexanders Holdings, Inc. common stock for every one share of FNFV common stock that you hold at the close of business on [ ], 2015, the record date for the distribution. You will receive cash in lieu of any fractional share of J. Alexanders Holdings, Inc. common stock that you would otherwise have received. As discussed more fully in the Distribution section of this information statement, if you sell shares of FNFV common stock in the regular way market between [ ], 2015 and [ ], 2015, the distribution date, you will also be selling your right to receive shares of J. Alexanders Holdings, Inc. common stock in the distribution. Immediately after the distribution is completed, J. Alexanders Holdings, Inc. will be an independent, public company.
No stockholder action is necessary for you to receive the shares of J. Alexanders Holdings, Inc. common stock to which you are entitled in the distribution. This means that you do not need to pay any consideration to FNF or to us for the shares of J. Alexanders Holdings, Inc. common stock to be distributed to you and you do not need to surrender or exchange any shares of FNFV common stock to receive your shares of J. Alexanders Holdings, Inc. common stock.
There is currently no trading market for J. Alexanders Holdings, Inc. common stock. On [ ], 2015, shares of our common stock are expected to begin trading on a when-issued basis. We expect that when-issued trading will begin on or shortly before the record date and continue up to and including the distribution date, after which time all shares of our common stock will be traded on a regular settlement basis, or regular-way trading, on The New York Stock Exchange (NYSE) under the ticker symbol JAX. We cannot predict the trading prices for J. Alexanders Holdings, Inc. common stock before, on or after the distribution date.
As you review this information statement, you should carefully consider the matters described in the Risk Factors section beginning on page 26.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
This information statement is not an offer to sell nor does it seek an offer to buy any securities.
The date of this information statement is June [ ], 2015.
Page | ||||
SUMMARY |
1 | |||
DISTRIBUTION |
16 | |||
RISK FACTORS |
26 | |||
FORWARD-LOOKING STATEMENTS |
57 | |||
OUR CORPORATE STRUCTURE |
59 | |||
THE DISTRIBUTION |
64 | |||
DIVIDEND POLICY |
71 | |||
CAPITALIZATION |
72 | |||
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION |
73 | |||
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA |
79 | |||
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
81 | |||
INDUSTRY AND COMPETITION |
117 | |||
BUSINESS |
118 | |||
MANAGEMENT |
134 | |||
EXECUTIVE COMPENSATION |
141 | |||
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS |
151 | |||
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
159 | |||
DESCRIPTION OF CAPITAL STOCK |
162 | |||
DELIVERY OF INFORMATION STATEMENT |
169 | |||
WHERE YOU CAN FIND MORE INFORMATION |
170 | |||
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
F-1 |
i
INDUSTRY AND MARKET DATA
This information statement contains industry and market data, forecasts and projections that are based on internal data and estimates, independent industry publications, reports by market research firms or other published independent sources. In particular, we have obtained information regarding the restaurant industry from the National Restaurant Association (NRA) and Technomic, Inc. (Technomic). NRA is the largest foodservice trade association in the world, supporting nearly 500,000 restaurant businesses. Technomic is a national consulting market research firm. Other industry and market data included in this information statement are from internal analyses based upon data available from known sources or other proprietary research and analysis.
We believe the data used in this information statement to be reliable as of the date of this information statement, but there can be no assurance as to the accuracy or completeness of such information. We have not independently verified the market and industry data obtained from these third-party sources. Our internal data and estimates are based upon information obtained from trade and business organizations, other contacts in the markets in which we operate and our managements understanding of industry conditions. Though we believe this information to be true and accurate, such information has not been verified by any independent sources. You should carefully consider the inherent risks and uncertainties associated with the market and other industry data contained in this information statement, including those discussed under the heading Risk Factors beginning on page 23 of this information statement.
TRADEMARKS, SERVICE MARKS AND TRADE NAMES
We own the trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. This information statement may also contain trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, our trademarks, service marks, trade names and copyrights referred to in this information statement are listed without the TM, SM, © and ® symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors, if any, to these trademarks, service marks, trade names and copyrights.
BASIS OF PRESENTATION
Our fiscal year ends on the Sunday closest to December 31, and each quarter typically consists of 13 weeks. The period January 2, 2012 through September 30, 2012 included 39 weeks of operations, and the period October 1, 2012 through December 30, 2012 included 13 weeks of operations. Fiscal years 2013 and 2014 included 52 weeks of operations. Each of the three months ended March 29, 2015 and March 30, 2014 included 13 weeks of operations. All financial information herein relating to periods prior to the completion of the reorganization transactions described herein is that of J. Alexanders Holdings, LLC and its consolidated subsidiaries. Financial information through and including September 30, 2012, the date Fidelity National Financial, Inc. (FNF) acquired J. Alexanders Corporation (JAC) for accounting purposes, is referred to as Predecessor company information, which has been prepared using the previous basis of accounting. The financial information for periods beginning on or after October 1, 2012 is referred to as Successor company information and reflects the financial statement effects of recording fair value adjustments and the capital structure resulting from FNFs acquisition of JAC.
Financial and operating information for all periods presented has been adjusted to reflect the impact of discontinued operations for comparative purposes.
ii
References to our same store restaurants and same store sales or average weekly same store sales in this information statement refer to sales from our restaurants in operation at the end of the period which have been open for longer than 18 consecutive months prior to the end of a specified period.
CERTAIN DEFINITIONS
Unless otherwise expressly indicated in this information statement or the context otherwise requires:
|
references to J. Alexanders Holdings, Inc. and the issuer refer to J. Alexanders Holdings, Inc., a Tennessee corporation, and not to any of its subsidiaries; |
|
references to J. Alexanders Holdings, LLC, refer to J. Alexanders Holdings, LLC, a Delaware limited liability company, the sole owner of J. Alexanders, LLC; |
|
references to J. Alexanders, LLC refer to J. Alexanders, LLC, a Tennessee limited liability company, which is a wholly owned subsidiary of J. Alexanders Holdings, LLC and, together with its subsidiaries (which we refer to as our Operating Subsidiaries), conducts all of our business operations; J. Alexanders, LLC is the successor upon conversion of J. Alexanders Corporation, which we refer to as JAC); |
|
references to the company, we, us and our refer to J. Alexanders Holdings, Inc. and its consolidated subsidiaries, including J. Alexanders Holdings, LLC and J. Alexanders, LLC, and the Operating Subsidiaries, giving effect to the reorganization transactions described below; |
|
references to FNF refer to Fidelity National Financial, Inc., a Delaware corporation, our parent company; |
|
references to FNFV refer to Fidelity National Financial Ventures, LLC, a Delaware limited liability company and wholly owned subsidiary of FNF, and its predecessor, Fidelity National Special Opportunities, Inc., a Delaware corporation, which converted into FNFV in May 2014; |
|
references to the Management Consultant refer to Black Knight Advisory Services, LLC, a Delaware limited liability company, which is owned by certain directors and executive officers of FNFV and J. Alexanders Holdings, Inc., and which provides business consulting services to us; |
|
references to the Management Consulting Agreement refer to the Management Consulting Agreement between us and the Management Consultant . |
|
references to Newport refer to Newport Global Opportunities Fund AIV-A LP, a Delaware limited partnership, whose investment manager is Newport Global Advisors LP; and |
|
references to FNH refer to Fidelity Newport Holdings, LLC, a Delaware limited liability company and a joint venture owned by FNFV, Newport and certain individuals. |
iii
NON-GAAP FINANCIAL MEASURES
In this information statement, we use the following financial measures that are not presented in accordance with generally accepted accounting principles in the United States (GAAP):
Adjusted EBITDA, defined as net income (loss) before interest expense, income tax (expense) benefit, depreciation and amortization, and adding asset impairment charges and restaurant closing costs, loss on disposals of fixed assets, transaction and integration costs, non-cash compensation, loss from discontinued operations, gain on debt extinguishment, pre-opening costs and certain unusual items, is a non-GAAP financial measure that we believe is useful to investors because it provides information regarding certain financial and business trends relating to our operating results. Adjusted EBITDA does not fully consider the impact of investing or financing transactions as it specifically excludes depreciation and interest charges, which should also be considered in the overall evaluation of our results of operations.
Restaurant Operating Profit, defined as net sales less restaurant operating costs, which are cost of sales, restaurant labor and related costs, depreciation and amortization of restaurant property and equipment, and other operating expenses, is a non-GAAP financial measure that we believe is useful to investors because it provides a measure of profitability for evaluation that does not reflect corporate overhead and other non-operating or unusual costs. Restaurant Operating Profit Margin is the ratio of Restaurant Operating Profit to net sales.
Our management uses Adjusted EBITDA and Restaurant Operating Profit to evaluate the effectiveness of our business strategies. We caution investors that amounts presented in this information statement in accordance with the above definitions of Adjusted EBITDA or Restaurant Operating Profit may not be comparable to similar measures disclosed by other companies, because not all companies calculate these non-GAAP financial measures in the same manner. Adjusted EBITDA and Restaurant Operating Profit should not be assessed in isolation from, or construed as a substitute for, net income or net cash provided by operating, investing or financing activities, each as presented in accordance with GAAP.
A reconciliation of these non-GAAP financial measures to the closest GAAP measure is included in this information statement under the heading Information Statement SummarySummary Historical and Unaudited Pro Forma Consolidated Financial and Other Data.
iv
This summary highlights selected information from this information statement relating to our company. For a more complete understanding of our business, the separation and the distribution, you should carefully read this entire information statement, including the Risk Factors and Managements Discussion and Analysis of Results of Operations sections and our combined historical and pro forma financial statements and notes to those statements appearing elsewhere in this information statement.
Unless otherwise indicated, the information included in this information statement assumes the completion of the separation of our company from FNF (the separation) and the distribution of our common stock to holders of FNFV common stock (the distribution).
Our Company
We own and operate three complementary upscale dining restaurant concepts: J. Alexanders, Redlands Grill and Stoney River Steakhouse and Grill (Stoney River). For more than 20 years, J. Alexanders guests have enjoyed a contemporary American menu, polished service and an attractive ambiance. In February 2013, our team brought our quality and professionalism to the steakhouse category with the addition of the Stoney River concept. Stoney River provides white tablecloth service and food quality in a casual atmosphere at a competitive price point. Our newest concept, Redlands Grill, offers guests a different version of our contemporary American menu and a distinct architectural design and feel.
Our business plan has evolved over time to include a collection of restaurant concepts dedicated to providing guests with what we believe to be the highest quality food, high levels of professional service and a comfortable ambiance. By offering multiple restaurant concepts and utilizing unique non-standardized architecture and specialized menus, we believe we are positioned to continue to scale and grow our overall restaurant business in an efficient manner in urban and affluent suburban areas. We want each of our restaurants to be perceived by our guests as a locally- managed, stand-alone dining experience. This differentiation permits us to successfully operate each of our concepts in the same geographic market. If this strategy continues to prove successful, we may expand beyond our current three concept model in the future.
While each concept operates under a unique trade name, each of our restaurants is identified as a J. Alexanders Holdings restaurant. As of March 29, 2015, we operated a total of 41 locations across 14 states. We are currently planning to transition between 12 and 15 of our J. Alexanders restaurants to Redlands Grill restaurants. Other restaurant locations may be added or converted in the future as we determine how best to position our multiple concepts in a given geographic market.
We believe our concepts deliver on our customers desire for freshly-prepared, high quality food and high quality service in a restaurant that feels unchained with architecture and design that varies from location to location. As a result, we have delivered strong growth in same store sales, average weekly sales, net sales and Adjusted EBITDA. Through our combination with Stoney River, we have grown from 33 restaurants across 13 states in 2008 to 41 restaurants across 14 states as of March 29, 2015. Our growth in same store sales since 2008 has allowed us to invest significant amounts of capital to drive growth through the continuous improvement of existing locations, the development of plans to open new restaurants, and the hiring of personnel to support our growth plans.
Our J. Alexanders restaurants have generated 21 consecutive fiscal quarters of positive same store sales growth, which we believe demonstrates the strength of that concept. We have grown the average weekly sales at our J. Alexanders concept from approximately $88,400 in 2008 to approximately $107,000 in 2014, representing an increase of 21.0% over that time period. We have
1
also grown the average weekly sales at the Stoney River locations since February 2013, even while implementing significant operational and remodeling improvements. From 2008 to 2014, our annual net sales (not including restaurants categorized as discontinued operations) increased from $137,622,000 to $202,233,000 and Adjusted EBITDA increased from $10,494,000 to $22,358,000. We generated net income of $105,000 in 2008 and $8,515,000 in 2014. For the three-month period ended March 29, 2015, our net sales were $56,184,000 and our net income was $4,773,000. For a definition and reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income, see Summary Historical and Unaudited Pro Forma Consolidated Financial and Other Data.
(1) |
Adjusted EBITDA presented for the 2012 period, as adjusted. See - Managements Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Year Ended December 29, 2013 Compared to Supplemental Pro Forma MD&A Information for the Year Ended December 30, 2012 for a discussion of the adjustments included. |
(2) |
Stoney River is reflected in the 2014 and YTD through March 29, 2015 periods only. |
Our Concepts
J. Alexanders
J. Alexanders was founded in 1991 in Nashville, Tennessee and for more than 20 years has offered a quality upscale dining experience with a contemporary American menu in an environment with an attractive ambiance. At J. Alexanders, we pride ourselves on our attentive, highly professional service. The J. Alexanders menu focuses on made-from-scratch menu items created with high quality, fresh ingredients. It features prime rib of beef, hardwood-grilled steaks, seafood and chicken, pasta, salads, soups, and assorted sandwiches, appetizers and desserts. The menu is complemented by a broad wine list with several exclusive offerings and signature cocktails. Each restaurant is open for lunch and dinner seven days a week and had an average check per guest of $29.69 in 2014. As of March 29, 2015, we operated 29 J. Alexanders locations. We plan to transition 12 to 15 of these locations to the Redlands Grill concept by December 2015.
2
Stoney River Steakhouse and Grill
Stoney River was founded in 1996 in Atlanta, Georgia and is a steakhouse concept that seeks to provide the quality and service of a fine dining steakhouse at a more reasonable price point. Stoney River has a high quality steakhouse menu, but unlike many steakhouse competitors, the menu is not a la carte and every steak comes with a side item. The menu is broader than many steakhouses, and includes house specialties ranging from pasta and chicken to shrimp, salmon and baby back ribs, complemented by an extensive wine list and signature cocktails. Each restaurant is open seven days a week for dinner and had an average check per guest of $45.31 in 2014. Stoney River has been a part of the J. Alexanders organization since February 2013 and, as of March 29, 2015, we operated ten Stoney River locations.
Redlands Grill
We have been working on the development of the Redlands Grill for over twelve months, and began the rollout in the first quarter of 2015. Redlands Grill offers a broad contemporary American cuisine featuring expanded menu offerings on a seasonal or rotational basis, including made-from-scratch flatbreads, sushi, and a strong emphasis on farm-to-table seasonal vegetables. Each restaurant is open for lunch and dinner seven days a week. Menu items are priced similarly to those at J. Alexanders restaurants. Currently, we operate two Redlands Grills and plan to transition a total of 12 to 15 locations to this concept by the end of fiscal 2015.
Competitive Landscape
The full-service restaurant business is highly competitive and highly fragmented, and the number, size and strength of competitors vary widely by region. We believe restaurant competition is based on quality of food products, customer service, reputation, restaurant décor, location, reputation and price. Each of our restaurant concepts compete with a number of other restaurants within each market location, including both locally-owned restaurants and restaurants that are part of regional or national chains. J. Alexanders and Redlands Grill also compete with regional and national restaurant chains that market to the upscale restaurant customer, such as Del Friscos Grill, Kona Grill and Seasons 52. The principal competitors for our Stoney River concept include locally-owned upscale steakhouses. Stoney River also competes with the national white tablecloth steakhouse chains that market to the upscale steakhouse customer, such as The Capital Grille, Smith & Wollensky, The Palm, Ruths Chris Steak House, Mortons The Steakhouse, Del Friscos and Flemings Prime Steakhouse and Wine Bar. Our concepts also compete with additional restaurants in the broader upscale and polished casual dining segments.
Our Strengths
Over our more than 20-year operating history, we have developed and refined the following strengths:
Three Distinct Yet Complementary Concepts
J. Alexanders, Redlands Grill and Stoney River are concepts with more than 40 years of combined history, strong brand value and exceptional customer loyalty in their core markets. All three restaurant concepts blend what we believe are the best attributes of fine and casual dining: a focus on high quality food made with fresh ingredients in a scratch kitchen, exceptional service, diverse menus and individualized interior and exterior design unique to each community. Each concept has a distinct identity, and the differentiation in menu and restaurant design is substantial enough that they can successfully operate in the same markets or retail locations.
3
Over time, we anticipate that we will continue to grow with our multi-branding strategy. Each restaurant concept will have 15 to 20 restaurants competing in the upscale casual dining segment of the restaurant industry. All of our restaurants will take advantage of our professional service system, made-from-scratch high-quality menu items, and unique architectural designs supported by upscale ambiance. We believe that this strategy will increase our national footprint and overall competitive advantage.
Delivering a Superior Dining Experience with the Highest Quality Service at a Reasonable Price Point
Our concepts seek to provide a high quality dining experience that appeals to a wide range of consumer tastes at reasonable price points, which we believe helps us to cultivate long-term, loyal guests who place a premium on the price-value relationships that our concepts offer.
Premium, Freshly Made Cuisine
Each of our concepts is committed to preparing high quality food from innovative menus. We are selective in the grade and freshness of our ingredients and in our menu offerings. Substantially all the protein and vegetables we use are delivered fresh to our restaurants and are not frozen in transport or in storage prior to being served, and are predominately preservative and additive-free. Virtually all of our made-to-order menu items are prepared from scratch. Stocks, sauces and desserts are made in-house daily. Our food menus are complemented by comprehensive wine lists that offer both familiar varietals as well as wines exclusive to our restaurants. While each menu has its own distinctive profile, we strive to continuously innovate with new ingredients and local farm-to-table produce to provide limited-time featured items to keep the experience new and interesting for our guests. Quality control is a key part of our mission and we have developed a taste plate process at all of our restaurants whereby all of our menu items are taste-tested daily by restaurant managers to ensure they meet our presentation and taste standards.
Outstanding Service
Prompt, courteous and efficient service delivered by a knowledgeable staff is an integral part of each of our concepts. Our goal is to have all staff working together to achieve the highest guest satisfaction, and we believe that our low table-to-server ratio, when coupled with team serving by a dedicated staff, ensures that our guests receive exceptional service.
Sophisticated Experience
Our concepts use a variety of architectural designs and building finishes to create beautiful, upscale décor with contemporary and timeless finishes. We are aggressive with our repair and maintenance program in all locations, ensuring that no restaurant ever looks highly trafficked or dated. This results in a reduced need for periodic major remodels to reimage a given location to acceptable standards.
Attractive Unit Economics and Consistent Execution
We believe that we have a long standing track record of consistently producing high average unit sales volumes and have proven the viability of our concepts in multiple markets and regions. We have successfully increased our average unit volumes at a compound annual growth rate of 3.2% from approximately $4,600,000 in 2008 to approximately $5,600,000 in 2014 for the J. Alexanders concept. Our highest volume J. Alexanders restaurant generated approximately $8,400,000 in net sales in
4
2014. From 2008 to 2014, we have increased our Restaurant Operating Profit Margin (as defined herein) at J. Alexanders by 5.9% to 15.7%. Since we began operating Stoney River, we have been able to increase the average weekly sales and Restaurant Operating Profit Margin at our Stoney River restaurants even while implementing significant operational improvements and remodeling several locations. We believe that additional remodels of locations in each of our concepts will contribute to increases in same store sales. Once operational for 36 months, we are targeting average unit volumes and Restaurant Operating Profit Margins for new locations to exceed system-wide fiscal year 2014 levels for all of our concepts.
Strong Cultural Focus on Continuous Training
We believe that our stringent hiring standards, coupled with our extensive and continuous training programs for all employees, provide our guests with outstanding service at each of our concepts. We prefer to hire general managers and regional management from within the organization; currently approximately 55% of those roles are filled by individuals promoted from within. We also seek to hire general manager prospects from top U.S. culinary and hospitality programs and train them in our systems and processes, which can be a three to five-year process. We believe that our hiring and training, and our focus on internal promotion help to ensure that our culture of excellent service is thoroughly disseminated throughout our organization.
Sophisticated and Scalable Back Office and Operations
Our back office and operations have developed over the last 20 years to provide us with advantages in our purchasing and shared services model. Most of our protein purchases are negotiated directly with our suppliers. Direct relationships with vendors provide us with cost and flexibility advantages that may not be available from third party distributors. We also have a shared service model for our back office that has centralized certain functions for all of our concepts at our corporate headquarters. Services shared between our concepts include staff training and recruiting, real estate development, purchasing, human resources, information technology, finance and accounting. From our vendor team to our shared services model, we believe that we have developed a scalable platform with the bench strength to support our planned growth with limited additions.
Experienced Management Team
We are led by a management team with significant experience in all aspects of restaurant operations. Our team of industry veterans at the executive level has an average of 30 years of restaurant experience. Our 41 general managers have an average tenure of approximately 9.9 years at J. Alexanders, 8.5 years at Redlands Grill, and 5.9 years at Stoney River as of May 2015. Despite a challenging economic environment, this management team has achieved 21 consecutive fiscal quarters of same store sales growth at the J. Alexanders concept, improved restaurant-level performance, integrated Stoney River operations and established new restaurant development efforts.
In addition, pursuant to the Management Consulting Agreement, we will continue to be able to leverage key management resources of FNF which have contributed significantly to our growth and financial performance since we were acquired by FNF in 2012.
5
Our Growth Strategies
We believe that there are significant opportunities to grow our business, strengthen our competitive position and enhance our concepts through the implementation of the following strategies:
Deliver Consistent Same Store Sales Growth Through Continuing to Provide High Quality Food and Service
We believe we will be able to continue to generate same store sales growth by consistently providing an attractive price/value proposition for our guests through excellent service in an upscale environment. We remain focused on delivering freshly prepared, contemporary American cuisine, with exceptional quality and service for the price, while continuing to explore ways to increase the flexibility of dining options for our guests. We will continue to adapt to changing consumer tastes and incorporate local offerings to reinforce our boutique restaurant feel through limited-time featured food and drink offerings and potential menu additions. We also have a program of continuous investment in all of our locations to maintain our store images at the highest level to ensure a consistent guest experience across all concepts. We believe that our level of repair and maintenance expense, coupled with our planned remodeling schedule, will also contribute to improvements in same store sales.
Pursue Disciplined New Restaurant Growth in Target Markets
We believe that upscale casual dining has significant growth potential and we are in the early stages of our growth story. We have built a scalable infrastructure, successfully grown J. Alexanders, commenced the conversion of certain J. Alexanders to Redlands Grill, and completed the integration of the Stoney River locations. Historically, we have focused on organic growth, but in 2013, we began to establish a new restaurant development pipeline. The first of our new restaurant openings occurred in Columbus, Ohio in the fourth quarter of 2014. We believe that there are significant opportunities to grow our concepts in both existing and new markets nationwide where we believe we can generate attractive unit economics. Developing the Redlands Grill concept is expected to further accelerate our growth as it will allow us to open additional restaurants in growing markets in which we already operate a J. Alexanders and/or a Stoney River.
We are constantly evaluating potential sites for new restaurant openings and currently have approximately 30 locations in approximately 20 separate markets under various stages of review and development. We believe that having a large number of sites under review at any one time is necessary in order to meet our development goals. In our experience, sites under analysis often will not result in a new restaurant location for any number of reasons, including the delay or cancelation of larger development projects on which a future restaurant may depend, the loss of potential site locations to competitors or our ultimate determination that a site under review is not appropriate for one of our concepts. We believe that the number of available and potential sites under review by us, the anticipated cost of opening a new restaurant location, and the capital resources anticipated to be available to us following completion of the distribution will support four to five new restaurant openings annually starting in 2016. However, our ability to open any particular number of restaurants in any calendar year is dependent upon many factors, risks and uncertainties beyond our control as discussed more fully elsewhere in this information statement under the heading Risk FactorsRisks Related to Our Business.
Leverage Our Infrastructure to Enhance Profitability
We believe that we have a scalable infrastructure and can continue to expand our margins as we execute our strategy, particularly as we continue to improve the operations at the Stoney River locations. While each of our restaurant concepts has independent store-level operations, we use our
6
shared services platform to conduct many of the training, quality control and administrative functions for our concepts. We believe that this approach will enhance our profitability as we grow. We believe we have the personnel in place to support our current growth plan without significant additional investments in infrastructure.
Capitalization
After completion of the distribution by FNF of our common stock, which we refer to as the spin-off or distribution, our outstanding capital stock will consist of 15 million shares of common stock. Stockholders will hold shares of common stock of J. Alexanders Holdings, Inc., the sole managing member of J. Alexanders Holdings, LLC. See Description of Capital Stock.
History and Corporate Structure
The first J. Alexanders restaurant opened in 1991 in Nashville, Tennessee. From 1991 to 2012, J. Alexanders was owned and operated by JAC, the predecessor to J. Alexanders, LLC, and grew from a single location in 1991 to 33 restaurants located in Alabama, Arizona, Colorado, Florida, Georgia, Illinois, Kansas, Kentucky, Louisiana, Michigan, Ohio, Tennessee and Texas.
Stoney River was founded by a group of entrepreneurs in Atlanta, Georgia in 1996. In 2000, OCharleys, Inc. (OCharleys) acquired Stoney River, which at that time operated two restaurant locations in suburban Atlanta, Georgia. From 2000 until 2012, OCharleys owned and operated Stoney River, adding additional locations in Georgia, Illinois, Kentucky, Maryland, Missouri and Tennessee.
In April of 2012, FNFV acquired OCharleys and in May of that year transferred its ownership in OCharleys to FNH. In September of 2012, FNFV acquired JAC and in February 2013, JAC was transferred to J. Alexanders Holdings, LLC, then a newly formed, wholly owned subsidiary of FNFV. In February of 2013, FNH transferred the Stoney River Assets (as defined herein) to J. Alexanders Holdings, LLC.
Redlands Grill is a new restaurant concept that we launched in the first quarter of 2015.
Corporate Structure
J. Alexanders Holdings, Inc. was incorporated in the State of Tennessee on August 15, 2014 for the purpose of conducting an initial public offering of shares of its common stock. Due to market conditions, we terminated the offering in the second quarter of 2015. To date, J. Alexanders Holdings, Inc. has engaged only in activities in contemplation of the terminated offering and the proposed spin-off. Prior to the completion of the spin-off, all of our business operations are being conducted through J. Alexanders Holdings, LLC and its subsidiaries.
In anticipation of the spin-off and planned public offering, beginning in August 2014 we commenced an internal restructuring that, following the completion of the proposed spin-off, will have resulted in the following:
|
the formation of the issuer; |
|
the formation of JAX Investments, Inc. (JAX Investments) by the issuer and the transfer to it of 1% of the Class A membership interests in J. Alexanders Holdings, LLC; |
7
|
the issuance of shares of common stock by us to the holders of Class A Units of J. Alexanders Holdings, LLC, including FNFV and Newport but excluding JAX Investments, in exchange for their membership interests in J. Alexanders Holdings, LLC; and |
|
the restatement of the current limited liability company agreement of J. Alexanders Holdings, LLC (referred to herein as the Restated Operating Agreement) to provide for the governance and control of J. Alexanders Holdings, LLC by us as its sole managing member and to establish the terms upon which the Management Consultant and other holders of Class B Units in J. Alexanders Holdings, LLC may exchange such Class B Units for shares of our common stock or, with regard to Class B Units issued to certain members of management, a cash payment, to be determined at our option. |
Following the consummation of the reorganization transactions and the spin-off, we will be a holding company and through our sole managing member, will control the business and affairs of J. Alexanders Holdings, LLC and its subsidiaries. Our principal asset will be our direct ownership of 99% of the Class A Units and an indirect ownership through JAX Investments of the remaining 1% of the Class A Units of J. Alexanders Holdings, LLC. In addition, following the consummation of the reorganization transactions and the spin-off, we will be treated as a corporation for U.S. federal income tax purposes, while J. Alexanders Holdings, LLC will continue to be treated as a partnership for U.S. federal income tax purposes.
In this information statement, we refer to the transactions described above as the reorganization transactions. For a detailed description of the reorganization transactions, including a summary of the material terms and conditions of the documents and agreements adopted or entered into in connection with the reorganization transactions, please see Certain Relationships and Related Party Transactions.
8
The diagram below summarizes our organizational structure immediately after completion of the reorganization transactions and the spin-off.
* |
Members of management who were previously granted Class B Units |
See Certain Relationships and Related Party Transactions, and Description of Capital Stock for more information on our corporate structure and the rights associated with our common stock and Class B Units of J. Alexanders Holdings, LLC.
About FNF
FNF is a leading provider of title insurance, technology and transaction services to the real estate and mortgage industries. FNF is the nations largest title insurance company through its title insurance underwritersFidelity National Title, Chicago Title, Commonwealth Land Title, Alamo Title and National Title of New Yorkthat collectively issue more title insurance policies than any other title company in the United States. FNF also provides industry-leading mortgage technology solutions and transaction services, including MSP ® , the leading residential mortgage servicing technology platform in the U.S., through its majority-owned subsidiary, ServiceLink Holdings, LLC. In addition, FNF indirectly owns majority and minority equity investment stakes in a number of entities, including Ceridian HCM, Inc., Digital Insurance, Inc., FNH and us.
Our Principal Shareholders
Newport is a limited partnership private equity investment fund managed by Newport Global Advisors LP, a Delaware limited partnership (Newport Global Advisors) and its controlled affiliates. Newport Global Advisors is a registered investment advisor, with $525 million in assets under management.
9
Agreements with FNF and its Affiliates
In addition to the documents and agreements described above that comprise the reorganization transactions, in connection with the spin-off, we intend to enter into a Tax Matters Agreement with FNF and a Management Consulting Agreement with Black Knight Advisory Services, LLC, which is owned and controlled by certain key executive officers and directors of FNFV and J. Alexanders Holdings, Inc. who have provided core advisory services to us since we were originally acquired by FNF. See, Certain Relationships and Related Party Transactions for a more complete description of the foregoing agreements.
Risk Factors
We face numerous risks and uncertainties in our operations that could have a material adverse effect on our business, results of operations and financial condition. Below is a summary of certain risk factors associated with our business that you should consider in evaluating an investment in our common stock. These risks are discussed more fully in the section titled Risk Factors immediately following this summary. Some of the more significant challenges and risks include the following:
|
the impact of, and our ability to react to, general economic conditions and changes in consumer preferences; |
|
our ability to open new restaurants and operate them profitably, including our ability to locate and secure appropriate sites for restaurant locations, obtain favorable lease terms, attract customers to our restaurants or hire and retain personnel; |
|
our ability to successfully develop and improve our Stoney River and Redlands Grill concepts; |
|
our ability to successfully transition certain existing J. Alexanders locations to Redlands Grill locations; |
|
our ability to obtain financing on favorable terms, or at all; |
|
the strain on our infrastructure caused by the implementation of our growth strategy; |
|
the significant competition we face for customers, real estate and employees; |
|
the impact of economic downturns or other disruptions in markets in which we have revenue or geographic concentrations within our restaurant base; |
|
the impact of increases in the price of, and/or reductions in the availability of, commodities, particularly beef; and |
|
the impact of negative publicity or damage to our reputation, which could arise from concerns regarding food safety and food-borne illnesses or other matters. |
Corporate Information
We were incorporated in Tennessee on August 15, 2014. Our principal executive offices are located at 3401 West End Avenue, Suite 260, Nashville, Tennessee 37203, and our telephone number is (615) 269-1900. Our website address is www.jalexandersholdings.com . Our website and the information contained on, or that can be accessed through, the website is not deemed to be incorporated by reference in, and is not considered part of, this information statement.
10
Questions and Answers About the Distribution
Q: Why is FNF separating its premium restaurant business from its other businesses?
A: The board of directors of FNF believes that the separation will enable: (i) J. Alexanders to pursue a more focused, industry-specific strategy; (ii) FNF to allocate resources and deploy capital in a manner consistent with its own priorities; (iii) better align management incentives with stockholder interests; and (iv) in the case of our upscale dining concepts, provide greater transparency for investors. Furthermore, the board of directors of FNF believes that the separation of FNF and J. Alexanders will (i) facilitate stock acquisitions using either companys stock and (ii) enhance the equity compensation programs of FNF and J. Alexanders. For more information, see The DistributionReasons for the Distribution.
Q: Why did FNF decide to separate its upscale dining concepts business now?
A: In 2014, FNFs senior management and board of directors undertook a strategic review of FNFs businesses, including an assessment of the market and growth characteristics of each of its businesses and the role of each business within FNFs overall business portfolio. FNF originally pursued an initial public offering of J. Alexanders but, due primarily to market conditions, terminated the IPO in the second quarter of 2015, and determined to undertake the separation and distribution. For more information, see The DistributionReasons for The Distribution.
Q: How will FNF accomplish the separation of (and distribution of shares in) J. Alexanders?
A: The separation will be accomplished through a series of transactions resulting in FNF owning 87.44% of our common stock. In the distribution, FNF will then distribute to its holders of FNFV common stock, 100% of the shares of J. Alexanders it owns. Following the distribution, J. Alexanders will be an independent, publicly-owned company.
Q: What will I receive in the distribution, and when will the distribution occur?
A: FNF will distribute 0.16391 shares of our common stock for every one share of FNFV common stock outstanding at 5:00 p.m. Eastern Time on [ ], 2015, the record date for the distribution. You will pay no consideration and will not give up any portion of your FNFV common stock to receive shares in the distribution. FNF will distribute the shares on [ ], 2015, which we refer to as the distribution date.
Q: As a holder of FNFV common stock on the record date, what do I need to do to participate in the distribution?
A: Nothing. You do not need to take any action, but we urge you to read this entire information statement carefully. No stockholder approval of the distribution is required or sought. You are not being asked for a proxy. You are not required to make any payment, surrender or exchange any of your shares of FNFV common stock or take any other action to receive your shares of our common stock.
Q: How will fractional shares be treated in the distribution?
A: FNF will not distribute any fractional shares of our common stock to holders of FNFV common stock. Fractional shares of our common stock to which FNFV stockholders of record would otherwise be entitled will be aggregated and sold in the public market by the distribution agent. The aggregate
11
net cash proceeds of the sales will be distributed pro rata to each holder who would otherwise have been entitled to receive a fractional share in the distribution. No interest will be paid on the amount paid in lieu of a fractional share. Proceeds from these sales will generally result in a taxable gain or loss to those stockholders. If you are entitled to receive cash proceeds from fractional shares, you should consult your tax advisor as to your particular circumstances. The tax consequences of the distribution are described in more detail under The DistributionMaterial U.S. Federal Income Tax Consequences of the Distribution.
Q: If I sell my stock, after the record date and on or before the distribution date, shares of FNFV common stock that I held on the record date, am I still entitled to receive shares of J. Alexanders common stock in the distribution?
A: Beginning on or shortly before the record date and continuing up to and including the distribution date, we expect that there will be two markets in FNFV common stock: a regular way market and an ex-distribution market. Shares of FNFV common stock that trade on the regular way market will trade with an entitlement to receive shares of our common stock in the distribution. Therefore, if you owned shares of FNFV common stock on the record date and sell those shares on the regular way market before the distribution date, you will also be selling the right to receive shares of our common stock in the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to receive shares of our common stock in the distribution, so that holders who sell shares ex-distribution will remain entitled to receive shares of our common stock even though they have sold their shares of FNFV common stock after the record date. You are encouraged to consult your financial adviser regarding the specific implications of selling your FNFV common stock prior to or on the distribution date.
Q: Will the distribution affect the number of shares of FNFV common stock that I currently hold?
A: No. The number of shares of FNFV common stock held by a stockholder will be unchanged as a result of the distribution. The market value of each share of FNFV common stock, however, is expected to decline to reflect the impact of the distribution. See The DistributionThe Number of Shares You Will Receive.
Q: What are the material United States federal income tax consequences of the distribution?
A: FNF has requested an opinion from KPMG LLP, its tax advisor, to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the request, the distribution will qualify as a transaction that is tax-free under Section 355 and other related provisions of the Internal Revenue Code of 1986, as amended (the Code). Please see Risk FactorsRisks Related to our Separation from FNF, Risk FactorsRisks Related to Our Common Stock and The DistributionMaterial U.S. Federal Income Tax Consequences of the Distribution for more information regarding the potential tax consequences of the distribution. Holders of FNFV common stock should consult their tax advisors regarding the particular tax consequences of the distribution.
Q: Will I receive a stock certificate for the shares of J. Alexanders Holdings shares distributed to me in the distribution?
A: No. Registered holders of FNFV common stock (meaning FNFV stockholders who hold FNFV common stock directly through an account with the transfer agent for FNFV common stock, Computershare) who are entitled to participate in the distribution will receive from Computershare, the
12
distribution agent, a book-entry account statement reflecting their ownership of our common stock. For additional information, registered stockholders should contact the distribution agent at (609) 430-7400 or through its website at www.computershare.com.
Q: What if I hold my shares in street name through a broker, bank or other nominee?
A: Holders of FNFV common stock who hold their shares through a broker, bank or other nominee will have their brokerage accounts credited with our common stock. For additional information, those stockholders should contact their broker, bank or other nominee directly.
Q: What if I have stock certificates reflecting my shares of FNFV common stock? Should I send them to FNFs transfer agent or to FNF?
A: No. You should not send your stock certificates to Computershare or to FNF. You should retain your FNFV stock certificates.
Q: Can FNF decide to cancel the distribution, even if all of the conditions are met?
A: Yes. Until the distribution has occurred, the FNF board of directors has the right, in its sole discretion, to terminate the distribution, even if all of the conditions are met.
Q: Will J. Alexanders incur any debt prior to or at the time of separation?
A: No.
Q: Does J. Alexanders intend to pay dividends?
A: The declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors, and subject to regulatory and other constraints. See Dividend Policy.
Q: Will my shares of J. Alexanders common stock trade on a stock market?
A: Yes. Currently, there is no public market for our common stock, but we intend to list our common stock on the New York Stock Exchange (NYSE) under the ticker symbol JAX. We cannot predict the trading prices for our common stock when such trading begins or thereafter.
Q: Will the distribution affect the market price of my FNFV shares?
A: Yes. The trading price of FNFV common stock immediately after the distribution is expected to be lower than the trading price immediately before the distribution because the trading price immediately after the distribution will no longer reflect the value of J. Alexanders business. Furthermore, until the market has fully analyzed the value of FNFV common stock after the distribution, FNFV common stock may experience more stock price volatility than usual. It is possible that the combined trading prices of FNFV common stock and our common stock immediately after the distribution will be less than the trading price of shares of FNFV common stock immediately before the distribution.
13
Q: What are the conditions to the distribution?
A: The Distribution is subject to final approval by the Board of FNF as well as a number of additional conditions, including, among others:
|
The receipt of a tax opinion from KPMG LLP; |
|
The United States Securities and Exchange Commission declaring effective the registration statement on Form 10 of which this information statement forms a part; |
|
The Separation and Distribution Agreement will not have been terminated; |
|
Any government approvals and other material consents necessary to consummate the distribution will have been obtained and be in full force and effect; |
|
The approval by the NYSE of the listing of our shares of common stock; and |
|
Additional conditions as set forth in the Separation and Distribution Agreement. |
Q: Were the terms and conditions of the separation and related transactions determined on an arms-length basis?
A: The terms and conditions of the separation and related transactions have not been negotiated or determined on an arms-length basis, because they have been negotiated and determined while we are still a majority-owned subsidiary of FNF. No independent committee of FNFs board of directors or other independent body has negotiated the terms of the separation and related transactions on our behalf, and no fairness opinion has been or will be obtained. As a result, the terms and conditions of the separation and related transactions may not reflect terms and conditions that would have resulted from arms-length negotiations between unaffiliated third parties. See Risk FactorsRisks Related to our Separation from FNF and Certain Relationships and Related Party TransactionsAgreements with FNF.
Q: What will the relationship be between FNF and J. Alexanders after the distribution?
A: Following the distribution, we will be an independent public company, and FNF will not retain any of our common stock. In connection with the separation and distribution, we will enter into a Separation and Distribution Agreement and a Tax Matters Agreement with FNF for the purpose of both effecting the separation and distribution and governing our relationship with FNF following the separation. We describe these agreements in more detail under Certain Relationships and Related Party Transactions Agreements with FNF.
Q: Why is J. Alexanders entering into the consulting agreement with Black Knight Advisory Services, LLC?
A: Our executive management team has substantial experience in the restaurant industry, particularly the upscale dining segment. The principals of the Management Consultant, most of whom who also serve as executive officers and directors of FNFV, have substantial experience in mergers, acquisitions, accessing public capital markets, managing public reporting and corporate governance, as well as extensive knowledge of our business, strategic plan, and finances. Rather than hiring additional executive management personnel with these skills or outsourcing to another consulting firm, in each case without the experience, background, track record and input on our business, we
14
determined that using the services of the Management Consultant was the most cost effective way to provide us with these services. Factors considered included the cost savings from screening, recruiting and hiring such persons into our Company, reducing the burden on our operational management team to integrate and educate new officers or consultants, and the fact that the majority of the compensation payable to the Management Consultant is based on the performance of the Company. We describe this agreement in more detail under Certain Relationships and Related Party TransactionsManagement Consulting Agreement.
Q: Are there risks to owning J. Alexanders common stock?
A: Yes. These risks are described under Risk Factors. We encourage you to read that entire section carefully.
Q: Will I have appraisal rights in connection with the separation and distribution?
A: No. Holders of FNFV common stock are not entitled to appraisal rights in connection with the separation or the distribution.
Q: Where can I get more information?
A: If you have any questions relating to the transfer or mechanics of the distribution, you should contact the distribution agent at:
Computershare
250 Royall Street
Canton, MA 02051
(609) 430-7400
For other questions relating to the separation or the distribution, prior to the distribution, or for questions relating to FNFV common stock after the distribution, you should contact FNFs investor relations department at:
Fidelity National Financial, Inc.
601 Riverside Avenue
Jacksonville, FL 32204
(904) 854-8100
For other questions relating to the separation or the distribution, after the distribution, you should contact our investor relations department at:
J. Alexanders Holdings, Inc.
3401 West End Avenue, Suite 260
Nashville, Tennessee 37203
(615) 269-1900
15
The following is a brief summary of the terms of the distribution. For a full discussion of the distribution, see Distribution.
Distributing Company: |
Fidelity National Financial, Inc., a Delaware corporation, which after the distribution will not own any shares of our common stock. |
|
Distributed Company: |
J. Alexanders Holdings, Inc., a Tennessee corporation, which is a majority-owned subsidiary of FNF. After the distribution, we will be an independent public company. |
|
Distributed Shares: |
All of the outstanding shares of our common stock owned by FNF immediately prior to the distribution, constituting 87.44% of all of our issued and outstanding shares, will be distributed to the holders of FNFV common stock in the distribution. The number of shares that FNF will distribute to its holders of FNFV common stock will be reduced to the extent that cash payments are to be made in lieu of the issuance of fractional shares of our common stock, as described below. |
|
Distribution Ratio: |
0.16391 shares of our common stock for every one share of FNFV common stock that you hold at the close of business on the record date for the distribution. |
|
Fractional Shares: |
FNF will not distribute any fractional shares of our common stock to the holders of FNFV common stock. Instead, the distribution agent will aggregate fractional shares into whole shares and sell them in the open market at prevailing market prices and distribute the proceeds pro rata to each person who otherwise would have been entitled to receive a fractional share in the distribution. You will not be entitled to any interest on the amount of payment made in lieu of a fractional share. |
|
Record Date: |
[ ], 2015 (5:00 p.m., New York City time). |
|
Distribution Date: |
[ ], 2015. |
|
Distribution: |
On or about the distribution date, the distribution agent will distribute the shares of our common stock by crediting such shares to book-entry accounts for persons who were holders of FNFV common stock at the close of business on the record date. You will not be required to make any payment or surrender or exchange your FNFV common stock or take any other |
16
action to receive your shares of our common stock. The transfer agent will mail an account statement to each such holder of FNFV common stock stating the number of shares of our common stock credited to such holders account. Beneficial stockholders will receive information from their brokerage firms. If you sell shares of FNFV common stock in the regular way market between the record date and the distribution date, you will also be selling your right to receive shares of our common stock in the distribution.
Under the Separation and Distribution Agreement, FNF may, in its sole and absolute discretion, without liability, decide not to proceed with the proposed distribution or change the terms of the distribution at any time prior to the time that the distribution is effected. See Certain Relationships and Related Party TransactionsRelated Party TransactionsAgreements with FNFSeparation and Distribution Agreement. |
||
Distribution Agent: |
Computershare. |
|
Transfer Agent and Registrar for our Shares: |
Computershare. |
|
Stock Exchange Listing: |
We have applied to list our common stock on the NYSE under the ticker symbol JAX. There is currently no trading market for our common stock. On [ ], 2015, trading of shares of our common stock is expected to begin on a when-issued basis. See DistributionTrading Between the Record Date and Distribution Date. |
|
Current Debt: |
On September 3, 2013, we entered into a loan agreement with Pinnacle Bank for a credit facility that includes a three-year $1,000,000 revolving line of credit and a seven-year $15,000,000 term loan. We used proceeds from the credit facility to retire our previously outstanding mortgage debt. On December 9, 2014, we executed an Amended and Restated Loan Agreement to provide for a five-year $15,000,000 development line of credit. Additionally, in May 2015, we increased our existing development line of credit to $20,000,000 and obtained a new term loan in the principal amount of $10,000,000, the proceeds of which were used to repay in full a promissory note payable to FNF. For additional information relating to our revolving credit facility and term loan facilities, see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources. |
17
Tax Considerations: |
FNF has requested an opinion from KPMG LLP, its tax advisor, to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the request, the distribution will qualify as a transaction that is tax-free under Section 355 and other provisions of the Code. The distribution is conditioned upon the receipt by FNF of such a favorable opinion of its tax advisor confirming the distributions tax-free status. See DistributionMaterial U.S. Federal Income Tax Consequences of the Distribution.
In connection with the distribution, we will be subject to restrictions on certain post-distribution actions, including significant transfers of our stock or assets, which could affect the qualification of the distribution as a tax-free transaction. We will also generally indemnify FNF if the distribution fails to qualify as a tax-free transaction for specified reasons. For additional information regarding these matters, see Certain Relationships and Related Party TransactionsTax Matters Agreement. |
|
Dividend Policy: |
The declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors and subject to regulatory and other constraints. See Dividend Policy. |
|
Relationship with FNF: |
Prior to the distribution, we will enter into a Separation and Distribution Agreement and a Tax Matters Agreement with FNF to effect the separation and distribution and provide a framework for our relationship with FNF after the separation. For a discussion of these arrangements, see Certain Relationships and Related Party Transactions- Agreements with FNF. |
|
Relationship with Management Consultant: |
Prior to the distribution, we will enter into a Management Consulting Agreement with Black Knight Advisory Services, LLC, which is owned by certain executive officers and directors of FNFV and J. Alexanders Holdings, Inc. For a discussion of this arrangement, see Certain Relationships and Related Party Transactions - Management Consulting Agreement. |
|
Risk Factors: |
The separation, distribution and ownership of our common stock involve various risks. You should carefully read the Risk Factors section of this information statement. |
18
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present J. Alexanders Holdings, Inc.s summary historical consolidated financial and operating data as of the dates and for the periods indicated. J. Alexanders Holdings, Inc. was formed as a Tennessee corporation on August 15, 2014. J. Alexanders Holdings, Inc. has not engaged in any business or other activities except in connection with its formation, the reorganization transactions and the distribution. Accordingly, all financial and other information herein relating to periods prior to the completion of the distribution is that of J. Alexanders Holdings, LLC and its consolidated subsidiaries. Financial information through and including September 30, 2012 is referred to as Predecessor company information, which has been prepared using the previous basis of accounting. The financial information for periods beginning on or after October 1, 2012 is referred to as Successor company information and reflects the financial statement effects of recording fair value adjustments and the capital structure resulting from FNFVs acquisition of JAC. The summary consolidated financial data as of and for the years ended December 30, 2012, December 29, 2013 and December 28, 2014 are derived from the audited consolidated financial statements included elsewhere in this information statement. The summary consolidated financial data as of March 29, 2015 and for the three months ended March 29, 2015 and March 30, 2014 are derived from the unaudited condensed consolidated financial statements included elsewhere in this information statement. The results for the three months ended March 29, 2015 are not necessarily indicative of the results that may be expected for the entire year.
The summary unaudited pro forma consolidated financial data for the three months ended March 29, 2015 and the fiscal year ended December 28, 2014 present our consolidated results of operations giving pro forma effect to the reorganization transactions and the distribution as if they had occurred at the beginning of fiscal 2014. The pro forma adjustments are based upon available information and certain assumptions that are factually supportable and that we believe are reasonable in order to reflect on a pro forma basis, the impact of the reorganization transactions and the distribution on the historical financial information of J. Alexanders Holdings, LLC. The pro forma results are for informational purposes only and do not reflect the actual results that we would have achieved had we operated as a public company and are not indicative of our future results of operations. See Unaudited Pro Forma Consolidated Financial Information.
19
Financial information for all periods presented has been adjusted to reflect discontinued operations for comparative purposes. The following summary consolidated financial data should be read together with the audited consolidated financial statements, unaudited condensed consolidated financial statements, the unaudited pro forma consolidated financial information, and accompanying notes and information under the caption Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this information statement.
Pro Forma | Pro Forma | Successor | Successor | Successor | Predecessor | Successor | ||||||||||||||||||||||||||
Dollars in thousands, except Average Weekly Same Store Sales |
|
Three months
Ended
March 29,
|
|
|
Year Ended
December 28, 2014 |
|
|
Year Ended
December 28, 2014(1) |
|
|
Year Ended
December 29, 2013(1) |
|
|
October 1,
2012 to December 30, 2012(1) |
|
|
January 2,
2012 to September 30, 2012(1) |
|
|
Three Months Ended |
|
|||||||||||
|
March 29,
2015(1) |
|
|
March 30,
2014(1) |
|
|||||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||||||||||||||
Net sales |
$ | 56,184 | $ | 202,233 | $202,233 | $188,223 | $40,341 | $116,555 | $56,184 | $52,356 | ||||||||||||||||||||||
Cost of sales |
17,447 | 64,591 | 64,591 | 61,432 | 12,883 | 36,858 | 17,447 | 16,374 | ||||||||||||||||||||||||
Restaurant labor and related costs |
16,415 | 61,539 | 61,539 | 59,032 | 12,785 | 38,050 | 16,415 | 15,425 | ||||||||||||||||||||||||
Depreciation and amortization of restaurant property and equipment |
1,994 | 7,652 | 7,652 | 7,228 | 1,425 | 4,117 | 1,994 | 1,882 | ||||||||||||||||||||||||
Other operating expenses |
10,910 | 40,440 | 40,440 | 39,016 | 7,849 | 23,175 | 10,910 | 10,473 | ||||||||||||||||||||||||
General and administrative expense |
5,110 | 18,723 | 14,450 | 11,981 | 2,330 | 8,109 | 3,977 | 3,286 | ||||||||||||||||||||||||
Pre-opening expense |
2 | 681 | 681 | - | - | - | 2 | - | ||||||||||||||||||||||||
Transaction and integration expenses |
- | - | 785 | (217) | 183 | 4,537 | 62 | 1 | ||||||||||||||||||||||||
Asset impairment charges and restaurant closing costs |
1 | 5 | 5 | 2,094 | - | - | 1 | 4 | ||||||||||||||||||||||||
Total operating expenses |
51,879 | 193,631 | 190,143 | 180,566 | 37,455 | 114,846 | 50,808 | 47,445 | ||||||||||||||||||||||||
Operating income |
4,305 | 8,602 | 12,090 | 7,657 | 2,886 | 1,709 | 5,376 | 4,911 | ||||||||||||||||||||||||
Interest expense |
186 | 667 | 2,908 | 2,888 | 187 | 1,174 | 443 | 759 | ||||||||||||||||||||||||
Other, net |
28 | 104 | 104 | 3,055 | 26 | (161) | 28 | 23 | ||||||||||||||||||||||||
Income from continuing operations before income taxes |
4,147 | 8,039 | 9,286 | 7,824 | 2,725 | 374 | 4,961 | 4,175 | ||||||||||||||||||||||||
Income tax (expense) benefit |
(1,576 | ) | (3,055 | ) | (328) | (138) | (1) | 79 | (82) | (29) | ||||||||||||||||||||||
Loss from discontinued operations, net |
- | - | (443) | (4,785) | (506) | (1,412) | (106) | (123) | ||||||||||||||||||||||||
Net income (loss) |
$ | - | $ | - | $8,515 | $2,901 | $2,218 | $(959) | $4,773 | $4,023 | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
Income from continuing operations attributable to non-controlling interests |
379 | 523 | ||||||||||||||||||||||||||||||
Income from continuing operations attributable to J. Alexanders Holdings, Inc. |
2,192 | 4,461 | ||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
Balance Sheet Data |
||||||||||||||||||||||||||||||||
Cash and cash equivalents |
- | - | $13,301 | $18,069 | $11,127 | $6,853 | $11,955 | $19,278 | ||||||||||||||||||||||||
Working capital (deficit)(2) |
- | - | (4,102) | 1,001 | (640) | (1,416) | 393 | 6,528 | ||||||||||||||||||||||||
Total assets |
- | - | 150,908 | 151,101 | 132,749 | 83,872 | 150,945 | 151,446 | ||||||||||||||||||||||||
Total debt |
- | - | 22,921 | 34,640 | 20,654 | 17,648 | 22,500 | 34,211 | ||||||||||||||||||||||||
Total membership equity |
- | - | 96,889 | 88,455 | 91,394 | 42,508 | 101,791 | 92,478 |
20
Successor | Successor | Successor | Predecessor | Successor | ||||||||||||||||||||
Dollars in thousands, except Average Weekly Same Store Sales |
|
Year Ended
December 28, 2014(1) |
|
|
Year Ended
December 29, 2013(1) |
|
|
October 1,
2012 to December 30, 2012(1) |
|
|
January 2,
2012 to September 30, 2012(1) |
|
|
Three Months Ended |
|
|||||||||
|
March 29,
2015(1) |
|
|
March 30,
2014(1) |
|
|||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
Other Financial Data: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$17,955 | $15,907 | $5,656 | $3,036 | $2,125 | $2,635 | ||||||||||||||||||
Net cash used in investing activities |
(10,693) | (6,126) | (1,159) | (2,608) | (3,050) | (997) | ||||||||||||||||||
Net cash used in financing activities |
(12,030) | (2,839) | (223) | (7,941) | (421) | (429) | ||||||||||||||||||
Capital expenditures |
10,536 | 6,610 | 1,159 | 2,535 | 3,005 | 997 | ||||||||||||||||||
Restaurant Operating Profit (4) |
28,011 | 21,515 | 5,399 | 14,355 | 9,418 | 8,202 | ||||||||||||||||||
Restaurant Operating Profit Margin(5) |
13.9% | 11.4% | 13.4% | 12.3% | 16.8% | 15.7% | ||||||||||||||||||
Adjusted EBITDA(6) |
22,358 | 17,739 | 4,662 | 11,184 | 7,811 | 6,990 | ||||||||||||||||||
Adjusted EBITDA Margin(7) |
11.1% | 9.4% | 11.6% | 9.6% | 13.9% | 13.4% | ||||||||||||||||||
Operating Data: |
||||||||||||||||||||||||
J. Alexanders/Redlands Grill: |
||||||||||||||||||||||||
Restaurants (end of period) |
31 | 30 | 33 | 33 | 31 | 30 | ||||||||||||||||||
Total same store restaurants (end of period)(3) |
30 | 30 | 31 | 31 | 30 | 30 | ||||||||||||||||||
Average Weekly Same Store Sales(3) |
$ | 107,000 | $102,200 | $99,700 | $96,400 | $118,600 | $111,800 | |||||||||||||||||
Change in Average Weekly Same Store Sales(3) |
4.7% | 5.0% | 2.0% | 3.8% | 6.1% | 4.8% | ||||||||||||||||||
Stoney River: |
||||||||||||||||||||||||
Restaurants (end of period) |
10 | 10 | - | - | 10 | 10 | ||||||||||||||||||
Total same store restaurants (end of period)(3) |
10 | 10 | - | - | 10 | 10 | ||||||||||||||||||
Average Weekly Same Store Sales(3) |
$66,200 | $64,200 | - | - | $74,600 | $70,700 | ||||||||||||||||||
Change in Average Weekly Same Store Sales(3) |
3.1% | - | - | - | 5.5% | 2.0% |
(1) |
We utilize a 52- or 53-week accounting period which ends on the Sunday closest to December 31, and each quarter typically consists of 13 weeks. The period January 2, 2012 to September 30, 2012, included 39 weeks of operations, and the period October 1, 2012 to December 30, 2012, included 13 weeks of operations. Fiscal years 2014 and 2013 each included 52 weeks of operations. Each of the three-month periods ended March 29, 2015 and March 30, 2014 included 13 weeks of operations. |
(2) |
Defined as total current assets minus total current liabilities. |
(3) |
We consider a restaurant to be comparable in the first full accounting period following the eighteenth month of operations. Changes in same store restaurant sales reflect changes in sales for the same store group of restaurants over a specified period of time. |
(4) |
Restaurant Operating Profit is a metric used by management to measure operating performance at the restaurant level. Restaurant Operating Profit represents net income (loss) before losses from discontinued operations, income tax (expense) benefit, interest expense, gain on extinguishment of debt, stock option expense, general and administrative costs, asset impairment charges and restaurant closing costs, transaction and integration expenses, and |
21
other, net non-operating income or expense. Management believes this measure is useful to investors because it allows for an assessment of our operating performance without the effect of general and administrative expenses and other non-operating or unusual costs incurred at the corporate level. The following table presents a reconciliation of Restaurant Operating Profit to net income (loss) for all periods presented: |
Successor | Predecessor | Successor | ||||||||||||||||||||||
(Dollars in thousands) |
|
Year Ended
December 28, 2014 |
|
|
Year Ended
December 29, 2013 |
|
|
October 1,
2012 to December 30, 2012 |
|
|
January 2,
2012 to September 30, 2012 |
|
|
Three Months Ended |
|
|||||||||
March 29, 2015 |
|
March 30,
2014 |
|
|||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
Net income (loss) |
$8,515 | $2,901 | $2,218 | $(959) | $4,773 | $4,023 | ||||||||||||||||||
Loss from discontinued operations, net |
443 | 4,785 | 506 | 1,412 | 106 | 123 | ||||||||||||||||||
Income tax (expense) benefit |
(328) | (138) | (1) | 79 | (82) | (29) | ||||||||||||||||||
Interest expense |
2,908 | 2,888 | 187 | 1,174 | 443 | 759 | ||||||||||||||||||
Gain on extinguishment of debt |
- | (2,938) | - | - | - | - | ||||||||||||||||||
Stock option expense |
- | - | - | 229 | - | - | ||||||||||||||||||
Other, net |
(104) | (117) | (26) | (68) | (28) | (23) | ||||||||||||||||||
General and administrative expenses |
14,450 | 11,981 | 2,330 | 8,109 | 3,977 | 3,286 | ||||||||||||||||||
Asset impairment charges and restaurant closing costs |
5 | 2,094 | - | - | 1 | 4 | ||||||||||||||||||
Transaction and integration expenses |
785 | (217) | 183 | 4,537 | 62 | 1 | ||||||||||||||||||
Pre-opening expense |
681 | - | - | - | 2 | - | ||||||||||||||||||
Restaurant Operating Profit |
$28,011 | $21,515 | $5,399 | $14,355 | $9,418 | $8,202 | ||||||||||||||||||
(5) |
Restaurant Operating Profit Margin is the ratio of Restaurant Operating Profit to net sales. |
22
(6) |
Adjusted EBITDA is a financial measure that management uses to evaluate operating performance and the effectiveness of its business strategies. Adjusted EBITDA is defined as net income (loss) before interest expense, income tax (expense) benefit, depreciation and amortization, and adding asset impairment charges and restaurant closing costs, loss on disposals of fixed assets, transaction and integration costs, non-cash compensation, loss from discontinued operations, gain on debt extinguishment, pre-opening costs and certain unusual items. Management believes Adjusted EBITDA is a useful metric for investors because it provides a comparative assessment of our operating performance relative to our performance based on our results under GAAP, while isolating the effects of some items that vary from period to period without any correlation to core operating performance. Specifically, Adjusted EBITDA allows for an assessment of our operating performance without the effect of non-cash depreciation and amortization expenses or our ability to service or incur indebtedness. The following table presents a reconciliation of Adjusted EBITDA to net income (loss) for all periods presented: |
Successor | Predecessor | Successor | ||||||||||||||||||||||
(Dollars in thousands) |
|
Year Ended
December 28, 2014 |
|
|
Year Ended
December 29, 2013 |
|
|
October 1,
2012 to December 30, 2012 |
|
|
January 2, 2012 to
September 30, 2012 |
|
|
Three Months Ended |
|
|||||||||
|
March 29,
2015 |
|
|
March 30,
2014 |
|
|||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
Net income (loss) |
$8,515 | $2,901 | $2,218 | $(959) | $4,773 | $4,023 | ||||||||||||||||||
Income tax (expense) benefit |
(328) | (138) | (1) | 79 | (82) | (29) | ||||||||||||||||||
Interest expense |
2,908 | 2,888 | 187 | 1,174 | 443 | 759 | ||||||||||||||||||
Depreciation and amortization |
7,992 | 7,483 | 1,470 | 4,164 | 2,084 | 1,964 | ||||||||||||||||||
EBITDA |
19,743 | 13,410 | 3,876 | 4,300 | 7,382 | 6,775 | ||||||||||||||||||
Asset impairment charges and restaurant closing costs |
5 | 2,094 | - | - | 1 | 4 | ||||||||||||||||||
Loss on disposals of fixed assets |
179 | 406 | 62 | 218 | 88 | 44 | ||||||||||||||||||
Transaction and integration costs |
785 | (217) | 183 | 4,537 | 62 | 1 | ||||||||||||||||||
Non-cash compensation |
522 | 199 | 35 | 717 | 170 | 43 | ||||||||||||||||||
Loss from discontinued operations, net |
443 | 4,785 | 506 | 1,412 | 106 | 123 | ||||||||||||||||||
Gain on debt extinguishment |
- | (2,938) | - | - | - | - | ||||||||||||||||||
Pre-opening expense |
681 | - | - | - | 2 | - | ||||||||||||||||||
Adjusted EBITDA |
$22,358 | $17,739 | $4,662 | $11,184 | $7,811 | $6,990 | ||||||||||||||||||
(7) |
Adjusted EBITDA Margin is defined as the ratio of Adjusted EBITDA to net sales. |
23
The following table presents a reconciliation of Adjusted EBITDA to net income (loss) for the predecessor periods indicated below, which are reflected in the Adjusted EBITDA graph included above under SummaryOur Company and Business elsewhere in this information statement. The financial data for the years ended January 2, 2011 and January 1, 2012 have been derived from the audited consolidated financial statements of our predecessor that are not included in this information statement.
Predecessor | Predecessor | |||||||
(Dollars in thousands) |
|
Year Ended
January 1, 2012 |
|
|
Year Ended
January 2, 2011 |
|
||
Net income (loss) |
$857 | $2,795 | ||||||
Income tax (expense) benefit |
(290) | 2,352 | ||||||
Interest expense |
1,664 | 1,853 | ||||||
Depreciation and amortization |
5,619 | 5,682 | ||||||
|
|
|
|
|||||
EBITDA |
8,430 | 7,978 | ||||||
Asset impairment charges and restaurant closing costs |
- | - | ||||||
Loss on disposals of fixed assets |
276 | 298 | ||||||
Transaction and integration costs |
- | - | ||||||
Non-cash compensation |
962 | 869 | ||||||
Loss from discontinued operations, net |
2,081 | 2,281 | ||||||
Gain on debt extinguishment |
- | - | ||||||
Pre-opening expense |
- | - | ||||||
|
|
|
|
|||||
Adjusted EBITDA |
$11,749 | $11,426 | ||||||
|
|
|
|
Adjusted EBITDA, Restaurant Operating Profit, Adjusted EBITDA Margin and Restaurant Operating Profit Margin are not measurements of our financial performance under GAAP and should not be considered in isolation or as an alternative to net income, net cash provided by operating, investing or financing activities or any other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. We caution investors that amounts presented above in accordance with the definitions of Adjusted EBITDA and Restaurant Operating Profit may not be comparable to similar measures disclosed by other companies, because not all companies calculate these non-GAAP financial measures in the same manner. Moreover, Adjusted EBITDA as presented throughout this information statement is not the same as similar terms in the applicable covenants of our credit facility or in the calculation of management incentive compensation.
Our management does not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. Although Adjusted EBITDA may be used by securities analysts, lenders and others as tools for evaluating performance, the measure has limitations as an analytical tool. The principal limitation of Adjusted EBITDA is that it excludes significant expenses and income that are required by GAAP to be recorded in the financial statements. Some additional limitations are:
|
Adjusted EBITDA does not reflect discretionary cash available to us to invest in the growth of our business; |
|
Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; |
24
|
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
|
Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; |
|
Adjusted EBITDA does not reflect depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; |
|
Adjusted EBITDA does not reflect non-cash compensation expense, which is and will likely remain a key element of our overall long-term incentive compensation package; and |
|
Adjusted EBITDA excludes tax payments that may represent a reduction in cash available to us. |
25
You should carefully consider each of the following risks and all of the other information set forth in this information statement. Based on the information currently known to us, we believe that the following information identifies the material risk factors affecting our company in each of the noted risk categories: (i) Risks Relating to Our Business; (ii) Risks Relating to Our Separation from FNF; (iii) Risks Relating to Our Structure; and (iv) Risks Relating to Our Common Stock. However, additional risks and uncertainties not currently known to us or that we currently believe to be immaterial may also have a material adverse effect on our business.
If any of the following risks and uncertainties develop into actual events, they could have a material adverse effect on our business, results of operations and financial condition. In such a case, the trading price of our common stock could decline.
Risks Relating to Our Business
Changes in general economic conditions, including any economic downturn or continuing economic uncertainty, have adversely impacted our business and results of operations in the past and may do so again.
Purchases at our restaurants are discretionary for consumers, and we are therefore susceptible to economic slowdowns. We believe that consumers generally are more willing to make discretionary purchases, including upscale and high-end restaurant meals, during favorable economic conditions. The most recent economic downturn, uncertainty and disruptions in the overall economy, including high unemployment, reduced access to credit and financial market volatility and unpredictability, and the related reduction in consumer confidence, negatively affected customer traffic and sales throughout our industry, including our category. If the economy experiences a new downturn or there are continued uncertainties regarding U.S. budgetary and fiscal policies, our customers, particularly price-sensitive families and couples and cost-conscious business clientele, may reduce their level of discretionary spending, impacting the frequency with which they choose to dine out or the amount they spend on meals while dining out.
There is also a risk that, if uncertain economic conditions persist for an extended period of time, consumers might make long-lasting changes to their discretionary spending behavior, including dining out less frequently on a more permanent basis. The ability of the U.S. economy to withstand this uncertainty is likely to be affected by many national and international factors that are beyond our control. These factors, including national, regional and local politics and economic conditions, the impact of higher gasoline prices, and reductions in disposable consumer income and consumer confidence, also affect discretionary consumer spending. Uncertainty in or a worsening of the economy, generally or in a number of our markets, and our customers reactions to these trends could adversely affect our business and cause us to, among other things, reduce the number and frequency of new restaurant openings, close restaurants and delay our remodeling of existing locations.
Changes in consumer preferences and discretionary spending patterns could adversely affect our business and results of operations.
The restaurant business is often affected by changes in consumer preferences, national, regional or local economic conditions, demographic trends, traffic patterns and the type, number and location of competing restaurants. Our success depends in part on our ability to anticipate and respond quickly to these changes. Shifts in consumer preferences away from meals at our price point or our beef, seafood and signature cocktails and wine menu offerings, which are significant components of our concepts menus and appeal, whether as a result of economic, competitive or other factors, could adversely affect our business and results of operations.
26
In addition, we place a high priority on maintaining the competitive positioning of our concepts, including the image and condition of our restaurant facilities and the quality of our customer experience. Consequently, we may need to evolve our concepts in order to compete with popular new restaurant formats or concepts that emerge from time to time, which could result in significant capital expenditures in the future for remodeling and updating. In addition, with improving product offerings, including an increased number of health-focused options at fast casual restaurants and quick-service restaurants, combined with the effects of uncertain economic conditions and other factors, consumers may choose less expensive alternatives, which could also negatively affect customer traffic at our restaurants. Any unanticipated slowdown in demand at any of our restaurants due to industry competition may adversely affect our business and results of operations.
Our future growth depends in part on our ability to open new restaurants and operate them profitably, and if we are unable to successfully execute this strategy, our business and results of operations could be adversely affected.
Our financial success depends in part on managements ability to execute our growth strategy. One key element of our growth strategy is opening new restaurants. However, future developments, including macroeconomic changes, could cause us to re-evaluate this growth strategy. Additionally, in the past, we have experienced delays in opening some restaurants, and that could happen again. Delays or failures in opening new restaurants and operating them profitably could materially and adversely affect our growth strategy and expected results.
Our ability to open new restaurants on a timely basis, or at all, and operate them profitably is dependent upon a number of factors, many of which are beyond our control, including:
|
finding quality site locations, competing effectively to obtain quality site locations and reaching acceptable agreements to lease or purchase sites; |
|
complying with applicable zoning, land use and environmental regulations and obtaining, for an acceptable cost and in a timely manner, required permits and approvals, including permits for construction, as well as required business and alcohol licenses; |
|
having adequate capital for construction and opening costs and efficiently managing the time and resources committed to building and opening each new restaurant; |
|
engaging and relying on third-party architects, contractors and their subcontractors responsible for building our restaurants to our specifications, on budget and within anticipated timelines; |
|
timely hiring and training and retaining the skilled management and other employees necessary to meet staffing needs consistent with our superior professional service expectations in each local market; |
|
successfully promoting our new locations and competing in their markets; |
|
acquiring food and other supplies for new restaurants from local suppliers; and |
|
addressing unanticipated problems or risks that may arise during the development or opening of a new restaurant or entering a new market. |
27
It has generally been our experience that new restaurants generate operating losses while they build sales levels to maturity, with maturity typically achieved within 18 to 24 months but in certain instances has taken considerably longer. This is due to lower sales generated by new restaurants compared to our restaurants operated in other areas, the costs associated with opening a new restaurant and higher operating costs caused by start-up and other temporary inefficiencies associated with opening new restaurants. For example, there are a number of factors which may impact the amount of time and money we commit to the construction and development of new restaurants, including landlord delays, shortages of skilled labor, labor disputes, shortages of materials, delays in obtaining necessary permits, local government regulations and weather interference. Once the restaurant is open, how quickly it achieves a desired level of profitability is impacted by many factors, including the level of market awareness and acceptance of our concepts when we enter new markets, as well as the availability of experienced, professional staff. Our business and profitability may be adversely affected if it takes longer than expected for our new restaurants to achieve the desired level of profitability.
Our ability to successfully execute new restaurant development depends heavily on successful site selection. If a site does not produce the anticipated results, a restaurant location may never reach our desired level of profitability, if it becomes profitable at all. In those cases, we may be forced to close restaurants and will incur significant costs associated with our exit from those markets, including costs associated with lease terminations or potential losses on the sale of real property that we own. For example, we have recently closed restaurants in Orlando, Scottsdale and Chicago because management determined that these restaurants were not producing acceptable levels of profitability. Additionally, previously successful restaurants may cease to produce acceptable or desired results in the future due to changes within the market in which they operate, such as a geographic shift in commercial development that drives customers away from the area in which we have an existing location. In those cases, if we determine that the market is still desirable, we may choose to relocate our existing restaurant or restaurants within that same market, which could result in increased costs associated with the purchase or lease of new property.
The failure to successfully develop and improve our Stoney River concept to achieve operational and quality standards consistent with those of our J. Alexanders concept could have a material adverse effect on our financial condition and results of operations.
In February 2013, FNH transferred the Stoney River Assets to us, which had previously been operated by a separate restaurant company. Since that time, our focus has been on the improvement of restaurant-level operations and the integration of Stoney River into our existing infrastructure. Our growth strategy for Stoney River will continue to require significant capital expenditures and management attention. There can be no assurance that we will be successful in achieving the desired level of profitability at Stoney River while delivering on the quality standards that we expect, and a failure to achieve the desired profitability of our Stoney River concept may adversely affect our business and results of operations. Further, new openings of Stoney River restaurants may take longer to achieve the desired level of profitability than has been our experience with J. Alexanders restaurants. We may not be able to attract enough customers to meet targeted levels of performance at new restaurants because potential customers may be unfamiliar with Stoney River or the atmosphere or menu might not appeal to them. In addition, although we believe that the differentiation in the menu and restaurant design between our concepts is substantial enough that they can both successfully operate within the same market, opening a new Stoney River in an existing market could reduce the revenue of our existing J. Alexanders restaurants in that market, and vice versa. If we cannot successfully execute our growth strategies for Stoney River, or if customer traffic generated by Stoney River results in a decline in customer traffic at one of our other restaurants in the same market, our business and results of operations may be adversely affected.
28
Significant capital is required to develop new restaurants and to maintain existing restaurants and to the extent financing is available to us, it may only be available on terms that could impose significant operating and financial restrictions on us.
We believe that the required capital investment in our upscale restaurants is high compared to more casual dining restaurants. Failure of a new restaurant to generate satisfactory net sales and profits in relation to its investment could result in our failure to achieve the desired financial return on the restaurant. Additionally, we may require capital beyond the cash flow provided from operations in order to open new units, which may be difficult to obtain on favorable terms, if at all. The terms of any financing we may obtain could impose restrictions on our operations, development and new financings. Further, after a restaurant is opened, we continue to incur significant capital costs associated with our strategy to reinvest in our restaurants in order to maintain the highly attractive, contemporary and comfortable environment in each of our locations that we believe our customers expect. For example, during 2015, we remodeled one of our J. Alexanders locations at a cost of approximately $1,700,000. In addition, we expect to complete remodels of three Stoney River locations at an average cost of $400,000 per location and intend to complete reinvestments and improvements at our other remaining locations across all of our concepts at an approximate total cost of $5,200,000. Consequently, our ability to carry out our growth strategy and to execute on development and capital expenditure decisions that we believe to be in our long-term best interest could be limited by the availability of additional financing sources and could involve additional borrowing which would further increase our long-term debt and interest expense.
Our growth, including the development and improvement of our Stoney River and Redlands Grill concepts, may strain our infrastructure and resources, which could delay the opening of new restaurants and adversely affect our ability to manage our existing restaurants.
Following the distribution, we believe there are opportunities to open four to five restaurants annually beginning in 2016. Our targeted growth will increase our operating complexity and place increased demands on our management as well as our human resources, purchasing and site management teams. We also need to develop concept identity and concept awareness of our new Redlands Grill concept. This may require the commitment of a significant amount of human capital and marketing expenditures. While we have committed significant resources to expanding our current restaurant management systems, financial and management controls and information systems in connection with our integration of the Stoney River concept and development of our Redland Grills concept, if this infrastructure is insufficient to support our anticipated expansion, our ability to open new restaurants and to manage our existing restaurants could be adversely affected. If we fail to continue to improve our infrastructure or if our infrastructure fails, we may be unable to implement our growth strategy or maintain current levels of operating performance in our existing restaurants.
If our restaurants are not able to compete successfully with other restaurants, our business, financial condition and results of operations may be adversely affected.
Our industry is highly fragmented and intensely competitive with respect to price, quality of service, restaurant location, ambiance of facilities and type and quality of food. A substantial number of national and regional restaurant chains and independently owned restaurants compete with us for customers, real estate and qualified management and other restaurant staff. The principal competitors for our concepts are local, chef-driven restaurants and regional, high-quality restaurant chains in each of our local markets. However, we also compete with other upscale national chains. Some of our competitors have greater financial and other resources, have been in business longer, have greater name recognition and are better established in the markets where our restaurants are located or where we may expand. Additionally, in recent years many upscale and high-end restaurants have expanded into the smaller and midsize markets in which some of our restaurants are located. Our inability to
29
compete successfully with other restaurants may harm our ability to maintain acceptable levels of revenue growth, limit or otherwise inhibit our ability to grow one or more of our concepts, or force us to close one or more of our restaurants.
As a result of revenue or geographic concentrations within our restaurant base, we may be more exposed to economic downturns or other disruptions in certain locations that could harm our business, financial condition and results of operation.
At March 29, 2015, we operated 41 restaurants in 14 states. Because of our relatively small restaurant base, unsuccessful restaurants could have a more adverse effect in relation to our financial condition and results of operations than would be the case in a restaurant company with a greater number of restaurants. For example, our J. Alexanders locations in Franklin, Tennessee and Plantation, Florida represented approximately 4.9% and 5.0% of our revenues in 2014, respectively.
We currently have a high concentration of J. Alexanders restaurants within the south Florida market (and in broader geographic markets, with respect to the concentration of J. Alexanders restaurants in Ohio and the concentration of J. Alexanders and Stoney River restaurants in Tennessee) and may in the future have similar concentrations of J. Alexanders, Redlands Grill and Stoney River restaurants within one or more overlapping markets as we execute on our growth strategy. This concentration exposes us to risks that one or more of these markets may be adversely affected by factors that are unique to that particular market, such as negative publicity, changes in consumer preferences, demographic shifts or other adverse economic impacts, which could adversely affect our business, results of operations or financial condition.
In addition, any natural disaster, prolonged inclement weather, act of terrorism or national emergency, accident, system failure or other unforeseen event in or around regions in which we operate multiple locations could result in significant and prolonged declines in customer traffic in these geographic regions, or a temporary or permanent closing of those locations, any of which could adversely affect our business, financial condition and results of operations.
If we are unable to increase our sales at existing J. Alexanders, Redlands Grill and Stoney River restaurants or improve our margins at existing Stoney River restaurants, our profitability and overall results of operations may be adversely affected.
Another key aspect of our growth strategy is increasing same store sales across all restaurants and improving the restaurant-level margins at our Stoney River restaurants to the level achieved at our existing J. Alexanders and Redlands Grill restaurants. Improving same store sales and restaurant-level margins depends in part on whether we achieve revenue growth through increases in the average check or traffic counts. Our ability to improve margins at Stoney River is further impacted by the costs that we have incurred, and will continue to incur, as we strive to improve the quality standards at Stoney River to make them consistent with those at our J. Alexanders and Redlands Grill restaurants. We believe that there are opportunities to increase the average check at our restaurants through, for example, selective introduction of new profitable menu items and increases in menu pricing. However, these strategies may prove unsuccessful, especially in times of economic hardship, as customers may not order new or higher priced items. Further, we believe that part of the appeal of our concepts is the opportunity to experience outstanding, professional service and high-quality menu items at reasonable prices. Consequently, any price increases must be balanced with our desire to meet customer expectations with respect to service and quality at a reasonable value. Modest price increases generally have not adversely impacted customer traffic; however, we expect that there is a price level at which point customer traffic would be adversely affected. It is also possible that these changes could cause our sales volume to decrease. If we are not able to increase our sales at existing restaurants for any reason, our profitability and results of operations could be adversely affected.
30
Increases in the prices of, and/or reductions in the availability of commodities, primarily beef and seafood, could adversely affect our business and results of operations.
Our profitability is dependent in part on our ability to purchase food commodities which meet our specifications and to anticipate and react to changes in food costs and product availability. Ingredients are purchased from suppliers on terms and conditions that management believes are generally consistent with those available to similarly situated restaurant companies. Although alternative distribution sources are believed to be available for most products, increases in overall food prices, failure to perform by suppliers or distributors or limited availability of products at reasonable prices could cause our food costs to fluctuate and/or cause us to make adjustments to our menu offerings.
Beef costs represented approximately 31.7% of our food and beverage costs during 2014. We currently do not purchase beef pursuant to any long-term contractual arrangements with fixed pricing or use futures contracts or other financial risk management strategies to reduce our exposure to potential price fluctuations. The beef market is particularly volatile and is subject to extreme price fluctuations due to seasonal shifts, climate conditions, the price of feed, industry demand, energy demand and other factors. We expect beef prices will continue to increase, perhaps substantially, through the remainder of 2015 compared to prices incurred in 2014.
In addition, our dependence on frequent deliveries of fresh seafood subjects us to the risk of possible shortages or interruptions in supply caused by adverse weather, environmental factors or other conditions that could adversely affect the availability and cost of such items. In the past, certain types of seafood have experienced fluctuations in availability. In addition, some types of seafood have been subject to adverse publicity due to certain levels of contamination at their source or a perceived scarcity in supply, which can adversely affect both supply and market demand. We can make no assurances that in the future either seafood contamination or inadequate supplies of seafood might not have a significant and materially adverse effect on our operating results.
Finally, the prices of other commodities can affect our costs as well, including corn and other grains, which are ingredients we use regularly and are also used as cattle feed and therefore affect the price of beef. Additional factors beyond our control, including adverse weather and market conditions, disease and governmental food safety regulation and enforcement, may also affect food costs and product availability. Energy prices can also affect our bottom line, as increased energy prices may cause increased transportation costs for beef and other supplies, as well as increased costs for the utilities required to run each restaurant. Historically, we have passed increased commodity and other costs on to our customers by increasing the prices of our menu items. While we believe these price increases generally have not affected our customer traffic, there can be no assurance that additional price increases would not affect future customer traffic. Although we believe that our integrated cost systems allows us to anticipate and quickly respond to fluctuations in commodity prices, including beef prices, if prices increase in the future and we are unable to anticipate or react to these increases, or if there are beef shortages, our business and results of operations could be adversely affected.
Negative customer experiences or negative publicity surrounding our restaurants or other restaurants could adversely affect sales in one or more of our restaurants and make our concepts less valuable.
Because we believe that our success depends significantly on our ability to provide exceptional food quality, outstanding service and an excellent overall dining experience, adverse publicity, whether or not accurate, relating to food quality, public health concerns, illness, safety, injury or government or industry findings concerning our restaurants, restaurants operated by other foodservice providers or others across the food industry supply chain could affect us more than it would other restaurants that
31
compete primarily on price or other factors. If customers perceive or experience a reduction in our food quality, service or ambiance or in any way believe we have failed to deliver a consistently positive experience, the value and popularity of one or more of our concepts could suffer. Further, because we rely heavily on word-of-mouth, as opposed to more conventional mediums of advertisement, to establish concept recognition, our business may be more adversely affected by negative customer experiences than other upscale dining establishments, including those of our competitors.
Negative publicity relating to the consumption of beef, seafood, chicken, produce and our other menu offerings, including in connection with food-borne illness, could result in reduced consumer demand for our menu offerings, which could reduce sales.
Shifts in consumer preferences away from the kinds of food we offer, particularly beef and seafood, whether because of dietary or other health concerns or otherwise, would make our restaurants less appealing and could reduce customer traffic and/or impose practical limits on pricing. In addition, instances of food-borne illness, such as Bovine Spongiform Encephalopathy, which is also known as BSE or mad cow disease, as well as hepatitis A, listeria, salmonella and E. coli, whether or not found in the United States or traced directly to one of our suppliers or our restaurants, could reduce demand for our menu offerings. Any negative publicity relating to these and other health-related matters may affect consumers perceptions of our restaurants and the food that we offer, reduce customer visits to our restaurants and negatively impact demand for our menu offerings. Adverse publicity relating to any of these matters, beef in general or other similar concerns could adversely affect our business and results of operations.
Governmental regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our business, financial condition and results of operations.
We are subject to various federal, state and local regulations, including those relating to building and zoning requirements and those relating to the preparation and sale of food. The development and operation of restaurants depends to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations and requirements. Our restaurants are also subject to state and local licensing and regulation by health, alcoholic beverage, sanitation, food and occupational safety and other agencies. In addition, stringent and varied requirements of local regulators with respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations or cause increases in development costs.
We are subject to the U.S. Americans with Disabilities Act (the ADA) and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas, including our restaurants. We may in the future have to modify restaurants by adding access ramps or redesigning certain architectural fixtures, for example, to provide service to or make reasonable accommodations for disabled persons. The expenses associated with these modifications could be material.
Our operations are also subject to the U.S. Occupational Safety and Health Act, which governs worker health and safety, the U.S. Fair Labor Standards Act, which governs such matters as minimum wages and overtime, and a variety of similar federal, state and local laws that govern these and other employment law matters. We may also be subject to lawsuits from our employees, the U.S. Equal Employment Opportunity Commission or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters, and we have been party to such matters in the past. Compliance with these laws can be costly and a failure or perceived failure to comply with these laws could result in negative publicity that could harm our reputation. In addition, federal, state and local proposals related to paid sick leave or similar matters could, if implemented, materially adversely affect our business, financial condition and results of operations.
32
The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations, or our inability to respond effectively to significant regulatory or public policy issues, could increase our compliance and other costs of doing business and, therefore, have an adverse effect on our results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Compliance with the aforementioned laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings.
Legislation and regulations requiring the display and provision of nutritional information for our menu offerings and new information or attitudes regarding diet and health could result in changes in consumer consumption habits that could adversely affect our results of operations.
Regulations and consumer eating habits may change as a result of new information or attitudes regarding diet and health or new information regarding the adverse health effects of consuming certain menu offerings. Such changes may include federal, state and local regulations that impact the ingredients and nutritional content of the food and beverages we offer. The growth of our restaurant operations is dependent, in part, upon our ability to effectively respond to changes in any consumer health regulations and our ability to adapt our menu offerings to trends in food consumption. If consumer health regulations or consumer eating habits change significantly, we may choose or be required to modify or retire certain menu items, which may adversely affect the attractiveness of our restaurants to new or returning customers. We may also experience higher costs associated with the implementation of those changes. To the extent that we are unwilling or unable to respond with appropriate changes to our menu offerings, it could materially affect consumer demand and have an adverse impact on our business, financial condition and results of operations.
Such changes have also resulted in, and may continue to result in, laws and regulations requiring us to disclose the nutritional content of our food offerings, and they have resulted, and may continue to result in, laws and regulations affecting permissible ingredients and menu offerings. For example, a number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose to consumers certain nutritional information, or have enacted legislation restricting the use of certain types of ingredients in restaurants. These requirements may be different or inconsistent with requirements under the Patient Protection and Affordable Care Act of 2010 (the PPACA), which establishes a uniform, federal requirement for certain restaurants to post nutritional information on their menus. Specifically, the PPACA requires chain restaurants with 20 or more locations operating under the same name to publish the total number of calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the context of a total daily calorie intake. The PPACA also requires covered restaurants to provide to consumers, upon request, a written summary of detailed nutritional information for each standard menu item, and to provide a statement on menus and menu boards about the availability of this information upon request.
While we do not anticipate that we will have more than 20 locations operating under the same name when this particular component of the PPACA becomes effective on December 1, 2015, compliance with current and future laws and regulations regarding the ingredients and nutritional content of our menu items will likely be costly and time-consuming. The risks and costs associated with nutritional disclosures on our menus could also impact our operations, particularly given differences among applicable legal requirements and practices within the restaurant industry with respect to testing and disclosure, ordinary variations in food preparation among our own restaurants, and the need to rely on the accuracy and completeness of nutritional information obtained from third-party suppliers.
33
We may not be able to effectively respond to changes in consumer health perceptions or our ability to successfully implement the nutrient content disclosure requirements and to adapt our menu offerings to trends in eating habits. The imposition of menu labeling laws could materially adversely affect our business, financial condition and results of operations, as well as our position within the restaurant industry in general.
Compliance with environmental laws may negatively affect our business.
We are subject to federal, state and local laws and regulations concerning waste disposal, pollution, protection of the environment, and the presence, discharge, storage, handling, release and disposal of, and exposure to, hazardous or toxic substances. These environmental laws provide for significant fines and penalties for noncompliance and liabilities for remediation, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of hazardous toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such hazardous or toxic substances at, on or from our restaurants. Environmental conditions relating to releases of hazardous substances at prior, existing or future restaurant sites could materially adversely affect our business, financial condition and results of operations. Further, environmental laws, and the administration, interpretation and enforcement thereof, are subject to change and may become more stringent in the future, each of which could materially adversely affect our business, financial condition and results of operations.
The effect of changes to healthcare laws in the United States may increase the number of employees who choose to participate in our healthcare plans, which may significantly increase our healthcare costs and negatively impact our financial results.
In 2010, the PPACA was signed into law in the United States to require healthcare coverage for many uninsured individuals and expand coverage to those already insured. We currently offer and subsidize a portion of comprehensive healthcare coverage, primarily for our salaried employees. Starting in 2015, the PPACA required us to offer healthcare benefits to all full-time employees (including full-time hourly employees) that meet certain minimum requirements of coverage and affordability, or face penalties. Starting in 2014, the PPACA also required most individuals to obtain coverage or face individual penalties. The amount of the individual penalty will increase significantly in future years. Accordingly, employees who are eligible for but currently elect not to participate in our healthcare plans may find it more advantageous to elect to participate in our healthcare plans. It is also possible that by making changes or failing to make changes in the healthcare plans offered by us we will become less competitive in the market for our labor. Finally, implementing the requirements of the PPACA is likely to impose additional administrative costs. The costs and other effects of these new healthcare requirements are not anticipated to have a significant effect on our business, financial condition or results of operations in fiscal 2015, but they may significantly increase our healthcare coverage costs in future periods and could materially adversely affect our business, financial condition and results of operations.
Changes to minimum wage laws and potential labor shortages could increase our labor costs substantially, which could slow our growth and adversely impact our ability to operate our restaurants.
Under the minimum wage laws in most jurisdictions, we are permitted to pay certain hourly employees a wage that is less than the base minimum wage for general employees because these employees receive tips as a substantial part of their income. As of March 29, 2015, approximately 39% of our employees earn this lower minimum wage in their respective locations since tips constitute a substantial part of their income. If cities, states or the federal government change their laws to require
34
all employees to be paid the general employee minimum base wage regardless of supplemental tip income, our labor costs would increase substantially. In addition, any increase in the minimum wage, such as the last increase in the minimum wage on July 24, 2009 to $7.25 per hour under the Federal Minimum Wage Act of 2007, would increase our costs. Certain states in which we operate restaurants have adopted or are considering adopting minimum wage statutes that exceed the federal minimum wage as well. Any increases in federal or state minimum wages may cause us to increase the wages paid to our employees who already earn above-minimum wages in order to continue to attract and retain highly skilled personnel. We may be unable or unwilling to increase our prices in order to pass these increased labor costs on to our customers, in which case our business and results of operations could be adversely affected.
A failure to recruit, develop and retain effective leaders, the loss or shortage of personnel with key capacities and skills, could jeopardize our ability to meet growth targets.
Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff, hosts and servers, necessary to meet the needs of our existing restaurants and anticipated expansion schedule, and who can meet the high standards necessary to deliver the levels of food quality, service and professionalism on which our concepts are based. Qualified individuals of the caliber and number needed to fill these positions are in short supply in some communities and competition for qualified employees could require us to pay higher wages and provide greater benefits to attract sufficient employees. Any inability to recruit and retain qualified individuals may also delay the planned openings of new restaurants and could adversely impact our existing restaurants. Any such inability to retain or recruit qualified employees, increased costs of attracting qualified employees or delays in restaurant openings could adversely affect our business and results of operations. Further, increases in employee turnover could have an adverse effect on food quality and guest service resulting in an adverse effect on net sales and results of operations.
Restaurant companies, including ours, have been the target of claims and lawsuits. Proceedings of this nature, if successful, could result in our payment of substantial costs and damages.
In recent years, we and other restaurant companies have been subject to claims and lawsuits alleging various matters, including those that follow. Claims and lawsuits may include class action lawsuits, alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal deductions, the sharing of tips amongst certain employees, overtime eligibility of assistant managers and failure to pay for all hours worked. Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these matters. Accordingly, if we are required to pay substantial damages and expenses as a result of these types or other lawsuits, our business and results of operations would be adversely affected.
Occasionally, our customers file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to one of our restaurants, including actions seeking damages resulting from food-borne illness and relating to notices with respect to chemicals contained in food products required under state law. We are also subject to a variety of other claims from third parties arising in the ordinary course of our business, including personal injury claims, contract claims and claims alleging violations of federal and state laws. In addition, most of our restaurants are subject to state dram shop or similar laws which generally allow a person to sue us if
35
that person was injured by a legally intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants. The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers. In addition, we may also be subject to lawsuits from our employees or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. A number of these lawsuits in the restaurant industry have resulted in the payment of substantial damages by the defendants.
Additionally, certain of our tax returns and employment practices are subject to audits by the U.S. Internal Revenue Service (the IRS) and various state tax authorities. Such audits could result in disputes regarding tax matters that could lead to litigation that would be costly to defend or could result in the payment of additional taxes, which could affect our business, results of operations and financial condition.
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert resources away from our operations. In addition, they may generate negative publicity, which could reduce customer traffic and sales. Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. Defense costs, even for unfounded claims, or a judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business, results of operations and financial condition.
Our insurance policies may not provide adequate levels of coverage against all claims, and fluctuating insurance requirements and costs could negatively impact our profitability.
We currently maintain insurance coverage that we believe is reasonable for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not commercially reasonable to insure. These losses, if they occur, could have a material and adverse effect on our business and results of operations. Additionally, health insurance costs in general have risen significantly over the past few years and are expected to continue to increase. These increases could have a negative impact on our profitability, and there can be no assurance that we will be able to successfully offset the effect of such increases with plan modifications and cost control measures, additional operating efficiencies or the pass-through of such increased costs to our customers or employees.
Health concerns arising from food-related pandemics, outbreaks of flu viruses or other diseases may have an adverse effect on our business.
The United States and other countries have experienced, or may experience in the future, outbreaks of viruses, such as norovirus, avian flu or SARS, H1N1 or swine flu or other diseases such as bovine spongiform, encephalopathy, commonly known as mad cow disease. If a virus or disease is foodborne, or perceived to be foodborne, future outbreaks may adversely affect the price and availably of certain food products and cause our guests to eat less of a product, or could reduce public confidence in food handling and/or public assembly. If we change a restaurant menu in response to such concerns, we may lose guests who do not prefer the new menu, and we may not be able to attract a sufficient new guest base to produce the sales needed to make the restaurant profitable. We also may have different or additional competitors for our intended guests as a result of such a change and may not be able to successfully compete against such competitors. If a virus is transmitted by human contact, our employees or guests could become infected, or could choose, or be advised, to avoid gathering in public places, any of which events could adversely affect our restaurant guest volume, and our ability to adequately staff our restaurants, receive deliveries on a timely basis or perform functions at the corporate level.
36
We occupy most of our restaurants under long-term, non-cancelable leases for which we may remain obligated to perform under even after a restaurant closes, and we may be unable to renew leases at the end of their terms.
We are a lessee under both ground leases (under which we lease the land and build our own restaurants on such land) and improved leases (where the lessor owns the land and the building) with respect to 23 current locations. Many of our current leases are non-cancelable and typically have terms ranging from approximately 15 to 20 years and provide for rent escalations and for one or more five-year renewal options. We are generally obligated to pay the cost of property taxes, insurance and maintenance under such leases, and certain of our leases provide for contingent rentals based upon a percentage of sales at the leased location. We believe that leases that we enter into in the future will be on substantially similar terms. If we were to close or fail to open a restaurant at a location we lease, we would generally remain committed to perform our obligations under the applicable lease, which could include, among other things, payment of the base rent for the balance of the lease term. Our obligation to continue making rental payments and fulfilling other lease obligations in respect of leases for closed or unopened restaurants could have a material adverse effect on our business and results of operations. Alternatively, at the end of the lease term and any renewal period for a restaurant, we may be unable to renew the lease without substantial additional cost, if at all. If we cannot renew such a lease we may be forced to close or relocate a restaurant, which could subject us to construction and other costs and risks. If we are required to make payments under one of our leases after a restaurant closes, or if we are unable to renew our restaurant leases, our business and results of operations could be adversely affected.
The impact of negative economic factors, including the availability of credit, on our landlords and other retail center tenants could negatively affect our financial results.
Negative effects on our existing and potential landlords due to any inaccessibility of credit and other unfavorable economic factors may, in turn, adversely affect our business and results of operations. If our landlords are unable to obtain financing or remain in good standing under their existing financing arrangements, they may be unable to provide construction contributions or satisfy other lease covenants to us. If any landlord files for bankruptcy protection, the landlord may be able to reject our lease in the bankruptcy proceedings. While we would have the option to retain our rights under the lease, we could not compel the landlord to perform any of its obligations and would be left with damages as our sole recourse. In addition, if our landlords are unable to obtain sufficient credit to continue to properly manage their retail sites, we may experience a drop in the level of quality of such retail centers. Our development of new restaurants may also be adversely affected by the negative financial situations of developers and potential landlords. In recent years, many landlords have delayed or cancelled development projects (as well as renovations of existing projects) due to the instability in the credit markets and declines in consumer spending, which has reduced the number of high-quality locations available that we would consider for our new restaurants. These failures may lead to reduced customer traffic and a general deterioration in the surrounding retail centers in which our restaurants are located or are proposed to be located and may contribute to lower customer traffic at our restaurants. If any of the foregoing affect any of our landlords or their other retail tenants our business and results of operations may be adversely affected.
Fixed rental payments account for a significant portion of our operating expenses, which increases our vulnerability to general adverse economic and industry conditions and could limit our operating and financing flexibility.
Payments under our operating leases account for a significant portion of our operating expenses and we expect the new restaurants we open in the future will similarly be leased by us. Specifically, cash payments under our operating leases accounted for approximately 2.8% of our
37
restaurant operating expenses in 2014. Our substantial operating lease obligations could have significant negative consequences, including:
|
requiring a substantial portion of our available cash flow to be applied to our rental obligations, thus reducing cash available for other purposes; |
|
limiting our flexibility in planning for or reacting to changes in our business or the industry in which we compete; |
|
increasing our vulnerability to general adverse economic and industry conditions; and |
|
limiting our ability to obtain additional financing. |
We depend on cash flow from operations to pay our lease obligations and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities and sufficient funds are not otherwise available to us from borrowings under our credit facility or other sources, we may not be able to meet our operating lease obligations, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which could adversely affect our business and results of operations.
Our level of indebtedness and any future indebtedness we may incur may limit our operational and financing flexibility and negatively impact our business.
J. Alexanders, LLC is currently the borrower on a Second Amended and Restated Loan Agreement with Pinnacle Bank which consists of the following loans:
|
A seven-year $15,000,000 mortgage loan dated September 3, 2013. |
|
A five-year $20,000,000 development line of credit dated May 20, 2015. |
|
A five-year $10,000,000 term loan dated May 20, 2015. |
|
A three-year $1,000,000 line of credit dated September 3, 2013. |
We may incur substantial additional indebtedness in the future. Our credit facility, and other debt instruments we may enter into in the future, may have important consequences to you, including the following:
|
our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired; |
|
we are required to use a significant portion of our cash flows from operations to pay interest on our indebtedness, which will reduce the funds available to us for operations and other purposes; |
|
our level of indebtedness could place us at a competitive disadvantage compared to our competitors that may have proportionately less debt; |
|
our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited; and |
|
our level of indebtedness may make us more vulnerable to economic downturns and adverse developments in our business. |
38
We expect that we will depend primarily on cash generated by our operations for funds to pay our expenses and any amounts due under our credit facility and any other indebtedness we may incur. Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic and other factors, many of which we cannot control. Our business may not generate sufficient cash flows from operations in the future and our currently anticipated growth in revenues and cash flows may not be realized, either or both of which could result in our being unable to repay indebtedness or to fund other liquidity needs. If we do not have enough money, we may be required to refinance all or part of our then existing debt, sell assets or borrow more money, in each case on terms that are not acceptable to us, or at all. In addition, the terms of existing or future debt agreements, including our existing credit facility, may restrict us from adopting some or any of these alternatives. Our inability to recapitalize and incur additional debt in the future could also delay or prevent a change in control of our Company, make some transactions more difficult and impose additional financial or other covenants on us. In addition, any significant levels of indebtedness in the future could make us more vulnerable to economic downturns and adverse developments in our business. Our current indebtedness and any inability to pay our debt obligations as they come due or inability to incur additional debt could adversely affect our business and results of operations.
The terms of our credit facility impose operating and financial restrictions on us.
Our credit facility contains certain restrictions and covenants that generally limit our ability to, among other things:
|
pay dividends or purchase stock or make other restricted payments to our equity holders; |
|
incur additional indebtedness; |
|
use assets as security in other transactions; |
|
sell assets or merge with or into other companies; |
|
sell equity or other ownership interests in our subsidiaries; and |
|
create or permit restrictions on our subsidiaries ability to make payments to us. |
Our credit facility may limit our ability to engage in these types of transactions even if we believed that a specific transaction would contribute to our future growth or improve our operating results. Our credit facility also requires us to achieve specified financial and operating results and maintain compliance with specified financial ratios. Specifically, these covenants require that we have a fixed charge coverage ratio of at least 1.25:1 and maintain a leverage ratio (adjusted debt to EBITDAR (as defined in the credit facility)) that may not exceed 4.0:1, in each case, as of the end of any fiscal quarter. As of March 29, 2015, we were in compliance with each of these tests. Specifically, as of March 29, 2015, the fixed charge coverage ratio was 2.94:1 and our leverage ratio was 1.60:1. Our ability to comply with these provisions may be affected by events beyond our control. A breach of any of these debt covenants or our inability to comply with required financial ratios in our credit facility could result in a default under the credit facility in which case the lenders would have the right to declare all borrowings, which includes any principal amount outstanding, together with all accrued, unpaid interest and other amounts owing in respect thereof, to be immediately due and payable. If we are unable to repay all borrowings when due, whether at maturity or if declared due and payable following a default, the lenders would have the right to proceed against the collateral granted to secure the indebtedness. If we breach these covenants or fail to comply with the terms of the credit facility and the lenders accelerate the amounts outstanding under the credit facility our business and results of operations would be adversely affected.
39
Our credit facility carries floating interest rates, thereby exposing us to market risk related to changes in interest rates. Accordingly, our business and results of operations may be adversely affected by changes in interest rates. Assuming a 100 basis point increase on our base interest rate on our credit facility and a full drawdown on both of the revolving lines of credit, our interest expense would increase by approximately $435,000 over the course of 12 months. As of March 29, 2015, the balance outstanding under the $15,000,000 term loan was $12,500,000, and we had no borrowings outstanding under the $1,000,000 revolving credit facility or the $20,000,000 development line of credit. At March 29, 2015, we also had $10,000,000 outstanding under the FNF Note, which was subsequently refinanced by Pinnacle Bank under a $10,000,000 term loan on May 20, 2015.
We depend on the services of key executives and management-level employees, and our business and growth strategy could be materially harmed if we were to lose these individuals and were unable to replace them with executives of equal experience and capabilities.
Our success is materially dependent upon the contributions of our senior executives and management-level employees because their experience in the restaurant industry and tenure with us allow for their invaluable contributions in setting our strategic direction, day-to-day operations, and recruiting and training key personnel. The loss of the services of such key employees could adversely affect our business until a suitable replacement of equal experience and capabilities could be identified. We believe that they could not quickly be replaced with executives of equal experience and capabilities and their successors may not be as effective. See Management.
The failure to enforce and maintain our intellectual property rights could enable others to use names confusingly similar to the names and marks used by our restaurants, which could adversely affect the value of our concepts.
We have registered the names J. Alexanders Restaurant, Redlands Grill, Stoney River Legendary Steaks and certain other names and logos used by our restaurants as trade names, trademarks or service marks with the United States Patent and Trademark Office (PTO). The success of our business depends in part on our continued ability to utilize our existing trade names, trademarks and service marks as currently used in order to increase our restaurant concept awareness. In that regard, we believe that our trade names, trademarks and service marks are valuable assets that are critical to our success. The unauthorized use or other misappropriation of our trade names, trademarks or service marks could diminish the value of our restaurant concepts and may cause a decline in our revenues and force us to incur costs related to enforcing our rights. In addition, the use of trade names, trademarks or service marks similar to ours in some markets may keep us from entering those markets. While we may take protective actions with respect to our intellectual property, these actions may not be sufficient to prevent, and we may not be aware of all incidents of, unauthorized usage or imitation by others. Any such unauthorized usage or imitation of our intellectual property, including the costs related to enforcing our rights, could adversely affect our business and results of operations.
Information technology system failures or breaches of our network security, including with respect to confidential information, could interrupt our operations and adversely affect our business.
We rely on our computer systems and network infrastructure across our operations, including point-of-sale processing at our restaurants and integrated cost systems that are instrumental in our procurement processes and in managing our food costs. Our operations depend upon our ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses, worms and other disruptive problems. Any damage or failure of our computer systems or network infrastructure that causes an interruption in our operations could limit our ability to
40
anticipate and react quickly to changing food costs and could subject us to litigation or actions by regulatory authorities. In addition, the majority of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in which credit and debit card information of their customers has been stolen or compromised. If this or another type of breach occurs at one of our restaurants, we may become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our customers credit or debit card information. Although we have made significant efforts to secure our computer network and to update and maintain our systems and procedures to meet the payment card industry data security standards, our computer network could be compromised and confidential information, such as guest credit card information, could be misappropriated. Any such claim, proceeding or action by a regulatory authority, or any adverse publicity resulting from such breaches and disruptions (or allegations of such breaches and disruptions), could adversely affect our business and results of operations.
If we are unable to effectively grow revenue and profitability at certain of our locations, we may be required to record impairment charges to our restaurant assets, the carrying value of our goodwill or other intangible assets, which could adversely affect our financial condition and results of operations.
We assess the potential impairment of our long-lived assets whenever events or changes in circumstances indicate that the carrying value of the assets or asset group may not be recoverable. Factors considered include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner in which an asset is being used, an expectation that an asset will be disposed of significantly before the end of its previously estimated useful life and significant negative industry or economic trends. We regularly review and compare the carrying value of our assets and properties, including goodwill, to the fair value of our assets and properties. We cannot accurately predict the amount and timing of any recorded impairment to our assets. Should the value of goodwill or other intangible assets become impaired, there could be an adverse effect on our financial condition and results of operations.
From time to time we may evaluate acquisitions, joint ventures or other initiatives that could distract management from our business or have an adverse effect on our financial performance.
We may be presented with opportunities to buy or acquire rights to other companies, businesses, restaurant concepts or assets that might be complementary or adjacent to our current strategic direction at the time and may provide growth opportunities. Any involvement in any such acquisition, merger, joint venture, alliance or divestiture may create inherent risks, including without limitation:
|
inaccurate assessment of value, growth potential, weaknesses, liabilities, contingent or otherwise, and expected profitability of potential acquisitions or joint ventures; |
|
inability to achieve any anticipated operating synergies or economies of scale; |
|
potential loss of key personnel of any acquired business; |
|
challenges in successfully integrating, operating and managing acquired businesses and workforce and instilling our Companys culture into new management and staff; |
|
difficulties in aligning enterprise management systems and policies and procedures; |
|
unforeseen changes in the market and economic condition affecting the acquired business or joint venture; |
41
|
possibility of impairment charges if an acquired business does not meet the performance expectations upon which the acquisition price was based; and |
|
diversion of managements attention and focus from existing operations to the integration of the acquired or merged business and its personnel. |
Our business will suffer if we fail to successfully integrate acquired companies, businesses and restaurant concepts.
In the future, we may acquire companies, businesses, restaurant concepts and other assets. The successful integration of any companies, businesses, restaurant concepts and assets we acquire into our operations, on a cost-effective basis, can be critical to our future performance. The amount and timing of the expected benefits of any acquisition, including potential synergies, are subject to significant risks and uncertainties. The integration of acquisitions with our operations could be expensive, require significant attention from management, may impose substantial demands on our operations or other projects and may impose challenges on the combined business including, without limitation, consistencies in business standards, procedures, policies and business cultures.
We cannot guarantee that any acquired companies, businesses, restaurant concepts or assets will be successfully integrated with our operations in a timely or cost-effective manner, or at all. Failure to successfully integrate acquired businesses or to achieve anticipated operating synergies, revenue enhancements or cost savings could have an adverse effect on our business, financial condition and results of operations.
We depend upon frequent deliveries of food and other supplies, in most cases from a limited number of suppliers, which subjects us to the possible risks of shortages, interruptions and price fluctuations.
Our ability to maintain consistent quality throughout our restaurants depends in part upon our ability to acquire fresh products, including beef, fresh seafood, quality produce and related items from reliable sources in accordance with our specifications. In addition, we rely on one or a limited number of suppliers for certain ingredients. This dependence on one or a limited number of suppliers, as well as the limited number of alternative suppliers of beef and quality seafood, subjects us to the possible risks of shortages, interruptions and price fluctuations in beef and seafood. If any of our suppliers is unable to obtain financing necessary to operate its business or its business is otherwise adversely affected, does not perform adequately or otherwise fails to distribute products or supplies to our restaurants, or terminates or refuses to renew any contract with us, particularly with respect to one of the suppliers on which we rely heavily for specific ingredients, we may be unable to find an alternative supplier in a short period of time or if we can, it may not be on acceptable terms. While we do not rely on any single-source supplier that we believe could not be replaced with one or more alternative suppliers without undue disruption, any delay in our ability to replace a supplier in a short period of time on acceptable terms could increase our costs or cause shortages at our restaurants that may cause us to remove certain items from a menu or increase the price of certain offerings, which could adversely affect our business and results of operations.
Our business is subject to seasonal and other periodic fluctuations and past results are not indicative of future results.
Our net sales and net income have historically been subject to seasonal fluctuations. Net sales and operating income typically reach their highest levels during the fourth quarter of the fiscal year due to holiday business and the first quarter of the fiscal year due in part to the redemption of gift cards sold during the holiday season. In addition, certain of our restaurants, particularly those located in
42
south Florida, typically experience an increase in customer traffic during the period between Thanksgiving and Easter due to an increase in population in these markets during that portion of the year.
Our quarterly results have been and will continue to be affected by the timing of new restaurant openings and their associated pre-opening costs, as well as any restaurant closures and exit-related costs and any impairments of goodwill, intangible assets and property, fixtures and equipment. As a result of these and other factors, our financial results for any quarter may not be indicative of the results that may be achieved for a full fiscal year.
Hurricanes and other weather-related disturbances could negatively affect our net sales and results of operations.
Certain of our restaurants are located in regions of the country which are commonly affected by hurricanes and tropical storms. Restaurant closures resulting from evacuations, damage or power or water outages caused by hurricanes, tropical storms, other natural disasters and winter weather could adversely affect our net sales and profitability. To the extent we maintain insurance policies or programs to mitigate the impact of these risks, our cash flows may be adversely impacted by delay in the receipt of proceeds under those policies or the proceeds may not fully offset any such losses.
Risks Relating to Our Separation from FNF
We may not realize any potential benefits that we expect to achieve as an independent, publicly traded company, and we may not enjoy certain benefits we enjoyed as part of the FNF after the separation.
We may not realize any of the potential benefits we expect from our separation from FNF. As an independent, publicly traded company, we believe that our businesses will benefit from, among other things, sharpened focus on the financial and operational resources of our specific business, allowing our management to design and implement a capital structure, corporate strategies and policies that are based primarily on the business characteristics and strategic opportunities of our businesses. We anticipate this will allow us to respond more effectively to industry dynamics and to allow us to create effective incentives for our management and employees that are more closely tied to our business performance. However, we may not be able to achieve some or all of the expected benefits. See DistributionReasons for the Distribution.
We will also incur significant costs in connection with the separation, which may exceed our estimates, and we will experience some negative effects from the separation, including loss of access to some of the financial, managerial and professional resources from which we have benefited in the past. We expect this risk will be somewhat mitigated by the Management Consulting Agreement pursuant to which certain executive officers of FNFV will continue to provide consulting services to us. In addition, completion of the distribution will require a significant amount of our managements time and effort, which may divert attention from operating and growing our business. By separating from FNF, there is also a risk that we may become more susceptible to market fluctuations and other adverse events than while we were a part of FNF. As part of FNF, we were able to enjoy certain benefits from FNFs operating diversity and access to capital for investments, benefits that will no longer be available to us following the separation.
If we fail to achieve some or all of the benefits that we expect from the separation on a timely basis or at all, our business, results of operations and financial condition could suffer a material adverse effect.
43
There can be no assurance that we will have access to the capital markets on terms acceptable to us.
From time to time we may need to access the long-term and short-term capital markets to obtain financing. Although we believe that the sources of capital in place that the time of the distribution will permit us to finance our operations for the foreseeable future on acceptable terms and conditions, our access to, and the availability of, financing on acceptable terms and conditions in the future or at all will be impacted by many factors, including, but not limited to:
|
our financial performance; |
|
our credit ratings or absence of a credit rating; |
|
the liquidity of the overall capital markets; and |
|
the state of the economy. |
There can be no assurance, particularly as a new company, that currently has no credit rating, that we will have access to the capital markets on terms acceptable to us.
Our combined historical and pro forma financial information is not necessarily representative of the results we would have achieved as a stand-alone company and may not be a reliable indicator of our future results.
Our combined historical and pro forma financial information included in this information statement does not reflect the financial condition, results of operations or cash flows we would have achieved as a stand-alone company during the periods presented or that we may achieve in the future. This is primarily a result of the following factors:
|
our combined historical and pro forma financial results may not fully reflect the costs associated with being a stand-alone public company, including significant changes that will occur in our cost structure, management, financing and business operations as a result of our separation from FNF; and |
|
our combined historical and pro forma financial results reflect certain allocations of corporate expenses from FNF which allocations may be different than the comparable expenses that we would have actually incurred as a stand-alone company. |
We have made adjustments based upon available information and assumptions that we believe are reasonable to reflect these factors, among others, in our combined historical and pro forma financial information. However, our assumptions may prove not to be accurate, and accordingly, the financial information presented in this information statement should not be assumed to be indicative of what our financial condition or results of operations actually would have been as a stand-alone company nor to be a reliable indicator of what our financial condition or results of operations actually may be in the future.
For a description of the components of our historical combined financial information and adjustments reflected in our pro forma financial information, see Managements Discussion and Analysis of Financial Condition and Results of OperationsBusiness Overview and our combined historical and pro forma financial statements included elsewhere in this information statement.
44
Until the distribution occurs, FNF has sole discretion to change the terms of the distribution in ways that may be unfavorable to us.
Until the distribution occurs, we are a majority-owned subsidiary of FNF. Accordingly, and in accordance with the Separation and Distribution Agreement, FNF has the sole and absolute discretion to determine and change the terms of the distribution, including the establishment of the record date, and the distribution date. These changes could be unfavorable to us. In addition, FNF may decide at any time not to proceed with the separation or the distribution, in its sole discretion.
We will experience increased costs after the separation or as a result of the separation.
We will need to replicate certain facilities, systems, infrastructure and personnel to which we will no longer have access after our separation from FNF. We will also need to make investments to operate without access to FNFs existing operational and administrative infrastructure. Although the Management Consulting Agreement is intended to mitigate this risk, we will likely need to retain additional personnel and infrastructure in order to operate as an independent company. These initiatives will be costly to implement. Due to the scope and complexity of the underlying projects, the amount of total costs cannot be accurately estimated at this time.
Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the separation and the distribution.
Our financial results previously were included within the consolidated results of FNF, and our reporting and control systems were appropriate for those of subsidiaries of a public company. Prior to the distribution, we are not directly subject to reporting and other requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 404 of the Sarbanes-Oxley Act of 2002. After the distribution, we will be subject to such reporting and other requirements, which will require, among other things, annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. These and other obligations will place significant demands on our management, administrative and operational resources, including accounting and IT resources.
To comply with these requirements, we will need to implement additional financial and management controls, reporting systems and procedures and hire additional staff. We will incur additional annual expenses related to these steps, including with respect to, among other things, director and officer liability insurance, director fees, expenses associated with our Securities and Exchange Commission (SEC) reporting obligations, transfer agent fees, increased auditing and legal fees and similar expenses, which expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, results of operations and financial condition.
We also expect that being a public company subject to additional laws, rules and regulations will require the investment of additional resources to ensure ongoing compliance with these laws, rules and regulations.
The distribution could result in significant tax liability to FNF, and we could be required to indemnify FNF for such liability.
FNF has requested an opinion from KPMG LLP, its tax advisor, to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the opinion, the distribution
45
will qualify as a transaction that is tax-free under Section 355 and/or other relevant provisions of the Code, and the distribution is conditioned upon the receipt by FNF of such favorable opinion confirming the distributions tax-free status. A United States holder (as defined in The DistributionMaterial U.S. Federal Income Tax Consequences of the Distribution) of FNFV common stock generally will recognize capital gain or loss with respect to cash received in lieu of a fractional share of our common stock.
The opinion will be based upon various factual representations and assumptions, as well as certain undertakings made by FNF and J. Alexanders. If any of those factual representations or assumptions are untrue or incomplete in any material respect, any undertaking is not complied with, or the facts upon which the opinion will be based are materially different from the facts at the time of the distribution, the distribution may not qualify for tax-free treatment. Opinions of tax advisors are not binding on the IRS or the courts. As a result, the conclusions expressed in an opinion could be challenged by the IRS, and if the IRS prevails in such challenge, the tax consequences to you could be materially less favorable.
If the distribution were determined not to qualify as a tax-free transaction under Section 355 of the Code, each United States holder generally would be treated as receiving a distribution taxable as a dividend in an amount equal to the fair market value of the shares of our common stock received by the holder with the consequences described in The Distribution Material U.S. Federal Income Tax Consequences of the Distribution. In addition, FNF generally would, or could be required to, recognize gain with respect to the distribution and certain related transactions, and we could be required to indemnify FNF for any resulting taxes and related expenses, which could be material.
The distribution and certain related transactions could be taxable to FNF if J. Alexanders or its stockholders were to engage in certain transactions after the distribution. In such cases, FNF and/or its stockholders could incur significant U.S. federal income tax liabilities, and we could be required to indemnify FNF for any resulting taxes and related expenses, which could be material.
We are agreeing to certain restrictions to preserve the treatment of the distribution as tax-free to FNF and holders of FNFV common stock, which will reduce our strategic and operating flexibility.
If the distribution fails to qualify for tax-free treatment as discussed above, it will be treated as a taxable dividend to holders of FNFV common stock in an amount equal to the fair market value of our stock issued to holders of FNFV common stock. In addition, in that event, FNF would be required to recognize a gain equal to the excess of the sum of the fair market value of our stock on the distribution date over FNFs tax basis in our stock.
In addition, current tax law generally creates a presumption that the distribution would be taxable to FNF but not to holders of FNFV common stock, if we or our stockholders were to engage in a transaction that would result in a 50% or greater change by vote or by value in our stock ownership during the two-year period beginning on the distribution date, unless it is established that the distribution and the transaction are not part of a plan or series of related transactions to effect such a change in ownership. In the case of such a 50% or greater change in our stock ownership, tax imposed on FNF in respect of the distribution would be based on the fair market value of our stock on the distribution date over FNFs tax basis in our stock.
46
Under the Tax Matters Agreement that we will enter into with FNF, we will generally be prohibited, except in specified circumstances, for specified periods of up to 24 months following the distribution, from:
|
issuing, redeeming or being involved in other significant acquisitions of our equity securities; |
|
voluntarily dissolving or liquidating; |
|
transferring significant amounts of our assets; |
|
amending our certificate of incorporation or by-laws; |
|
failing to engage in the active conduct of a trade or business; or |
|
engaging in certain other actions or transactions that could jeopardize the tax-free status of the distribution. |
See Certain Relationships and Related Party Transactions Agreements with FNFTax Matters Agreement.
In connection with our separation from FNF, we and FNF will undertake potentially significant indemnity obligations. If we are required to perform under these indemnities to FNF, we may need to divert cash to meet those obligations, which could have a material adverse effect on our business, results of operations and financial condition. In the case of FNFs indemnity, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of any relevant liabilities or that FNF will be able to satisfy its indemnification obligations in the future.
Under the Tax Matters Agreement that we will enter into with FNF, we will agree generally to indemnify FNF for taxes and related losses it suffers as a result of the distribution failing to qualify as a tax-free transaction, if the taxes and related losses are attributable to:
|
direct or indirect acquisitions of our stock or assets (regardless of whether we consent to such acquisitions); |
|
negotiations, understandings, agreements or arrangements in respect of such acquisitions; or |
|
our failure to comply with certain representations and undertakings from us, including the restrictions described in the preceding risk factor. |
See Certain Relationships and Related Party Transactions Related Party Transactions Agreements with FNF Tax Matters Agreement. Our indemnity will cover both corporate level taxes and related losses imposed on FNF in the event of a 50% or greater change in our stock ownership described in the preceding risk factor, as well as taxes and related losses imposed on FNF if, due to our representations or undertakings being incorrect or violated, the distribution is determined to be taxable for other reasons.
Indemnities that we may be required to provide FNF may be significant and could have a material adverse effect on our business, results of operations and financial condition, particularly indemnities relating to certain actions that could impact the tax-free nature of the distribution. Despite
47
the Tax Matters Agreement providing to the contrary, third parties could also seek to hold us responsible for any of the liabilities that FNF has agreed to retain. Further, there can be no assurance that the indemnity from FNF will be sufficient to protect us against the full amount of such liabilities, or that FNF will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from FNF any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could have a material adverse effect on our business, results of operations and financial condition.
The continued ownership of FNF common stock and FNFV common stock by some of our directors may create, or may create the appearance of, conflicts of interest.
Because of their current or former positions with FNF, certain of our officers and non-employee directors own FNF common stock and FNFV common stock. These holdings in FNF common stock and FNFV common stock may be significant for some of these persons compared to that persons total assets. Even though our board of directors will include directors who are independent from both FNF and our company, ownership of FNF common stock and FNFV common stock by our directors and officers after the separation may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for FNF than they do for us.
We could have potentially received better terms from unaffiliated third parties than the terms we receive in our agreements with FNF and its affiliates.
The agreements we will enter into with FNF or its affiliates in connection with the separation consist of the Separation and Distribution Agreement, the Tax Matters Agreement, and the Management Consulting Agreement, each of which were negotiated in the context of the separation while we were still a majority-owned subsidiary of FNF. Accordingly, during the period in which the terms of those agreements were negotiated, we did not have an independent board of directors or a management team independent of FNF. As a result, the terms of those agreements may not reflect terms that would have resulted from arms-length negotiations between unaffiliated third parties. The terms of the agreements negotiated in the context of the separation relate to, among other things, the consideration to be paid to Black Knight Advisory Services, LLC for management services under the Management Consulting Agreement. Arms-length negotiations between FNF and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to us. See Certain Relationships and Related Party Transactions Agreements with FNF.
Risks Related to Our Structure
We will be a holding company and our only material asset after completion of the reorganization transactions and the distribution will be our interest in J. Alexanders Holdings, LLC and, accordingly, we are dependent upon distributions from J. Alexanders Holdings, LLC to pay taxes and other expenses.
We will be a holding company and will have no material assets other than our ownership of Units of J. Alexanders Holdings, LLC. We will have no independent means of generating revenue. J. Alexanders Holdings, LLC will be treated as a partnership for U.S. federal income tax purposes and, as such, will not itself be subject to U.S. federal income tax. Instead, its net taxable income will generally be allocated to its members, including us, according to the membership interests each member owns. Accordingly, we will incur income taxes on our proportionate share of any net taxable income of J. Alexanders Holdings, LLC and also will incur expenses related to our operations. We intend to cause J. Alexanders Holdings, LLC to distribute cash to its members, including us, in an
48
amount at least equal to the amount necessary to cover their respective tax liabilities, if any, with respect to their allocable share of the net income of J. Alexanders Holdings, LLC and to cover dividends, if any, declared by us. To the extent that we need funds to pay our tax or other liabilities or to fund our operations, and J. Alexanders Holdings, LLC is restricted from making distributions to us under applicable agreements, laws or regulations or does not have sufficient cash to make these distributions, we may have to borrow funds to meet these obligations and operate our business, and our liquidity and financial condition could be materially adversely affected.
Under our Management Consulting Agreement with Black Knight Advisory Services, LLC, we have agreed to pay cash compensation equal to 3% of our annual Adjusted EBITDA which could result in significant increases in management fees and our expenses.
Under our Management Consulting Agreement with the Management Consultant, we will pay 3% of our annual Adjusted EBITDA to the Management Consultant in consideration for management consulting services. In entering into this agreement, we determined that given the level of services to be provided the terms were fair and reasonable to us. As we continue to execute our business plan and grow our concepts, we expect to generate increased Adjusted EBITDA which would result in automatic increases in the amounts payable to the Management Consultant under the Management Consulting Agreement. We have also agreed to issue Class B Units to the Management Consultant reflecting a 10% profits interest in J. Alexanders Holdings, LLC. Although these arrangements are designed to align the interests of the Management Consultant with our public shareholders, the compensation payable to the Management Consultant could be substantial as we generate increased levels of Adjusted EBITDA. In such circumstances, the amount of profits allocable to our shareholders and the amount of cash flow otherwise available to us for other corporate purposes, including dividends or other distributions to our shareholders, would be reduced.
The issuance of common stock upon exchange of Class B Units may dilute your ownership of common stock.
The Class B Units of J. Alexanders Holdings, LLC held by members of our management are exchangeable for, at our option, either shares of our common stock or a cash payment from J. Alexanders Holdings, LLC, and the Class B Units held by the Management Consultant are exchangeable only for shares of common stock, as described under Certain Relationships and Related Party Transactions Management Consulting Agreement and Our Corporate Structure J. Alexanders Holdings, LLC Profits Interest Incentive Plan. If we elect to issue common stock in respect of these exchanges, your ownership of common stock will be diluted.
If we elect to have J. Alexanders Holdings, LLC make cash payments for future exchanges of Class B Units, in lieu of issuing shares of common stock, such payments may reduce the amount of overall cash flow that would otherwise be available to us.
If we elect to have J. Alexanders Holdings, LLC make cash payments in lieu of issuing shares of common stock upon exchanges of Class B Units made by members of our management, such payments may require the payment of significant amounts of cash and may reduce the amount of overall cash flow that would otherwise be available for distribution to us from J. Alexanders Holdings, LLC. In such event, our ability to successfully execute our growth strategy may be negatively affected.
49
Risks Related to Ownership of Our Common Stock
Once our common stock begins trading, substantial sales of common stock may occur, which could cause our stock price to decline.
There is currently no public market for our common stock. On [ ], 2015, in connection with the declaration by the board of directors of FNF of the distribution, our common stock is expected to begin trading publicly on a when-issued basis. We have not set an initial price for our common stock. The price for our common stock will be established by the public markets. The shares of our common stock that FNF distributes to its stockholders generally may be sold immediately in the public market. Because holders of FNFV common stock did not invest directly in our stock, our business profile may not fit their investment objectives and they may sell our shares following the distribution period.
There is no existing market for our common stock, and we do not know if one will develop. Even if a market does develop, the market price of our shares cannot be predicted.
There is currently no public market for our common stock. We intend to apply to list our common stock on the NYSE, but we cannot predict the prices at which our common stock may trade after the distribution. The combined market prices of our common stock and FNFV common stock after the distribution may not equal or exceed the market value of FNFV common stock immediately before the distribution. In addition, we cannot predict the extent to which investor interest in our Company will lead to the development of an active trading market on the NYSE, or how liquid that market may become. An active public market for our common stock may not develop or be sustained after the distribution. If an active trading market does not develop or is not sustained, you may have difficulty selling any shares of our common stock.
Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price. Our quarterly operating results may fluctuate significantly because of several factors, including:
|
the timing of new restaurant openings and related expenses; |
|
restaurant operating expenses for our newly-opened restaurants, which are often materially greater during the first several quarters of operation than thereafter; |
|
labor availability and costs for hourly and management personnel; |
|
profitability of our restaurants, especially in new markets; |
|
changes in interest rates; |
|
increases and decreases in same store sales; |
|
impairment of long-lived assets and any loss on restaurant closures; |
|
macroeconomic conditions, both nationally and locally; |
|
negative publicity relating to the consumption of beef, poultry, seafood or other products we serve; |
|
changes in consumer preferences and competitive conditions; |
50
|
expansion to new markets; |
|
increases in infrastructure costs; and |
|
fluctuations in commodity prices. |
Our fiscal year ends on the Sunday closest to December 31 and generally contains 52 weeks. As a result of this format, we will periodically have a fiscal year which contains 53 weeks of operation, including a 14-week fourth quarter. Fiscal year 2015 represents such a year.
Seasonal factors and the timing of holidays also cause our revenue to fluctuate from quarter to quarter. Net sales and operating income typically reach their highest levels during the fourth quarter of the fiscal year due to holiday business and the first quarter of the fiscal year due in part to the redemption of gift cards sold during the holiday season. As a result of these factors, our quarterly and annual operating results and same store sales may fluctuate significantly. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year, and same store sales for any particular future period may decrease. In the future, operating results may fall below the expectations of securities analysts and investors. In that event, the price of our common stock would likely decrease.
The market price of our common stock may be volatile and you may not be able to sell your shares at an acceptable price.
The market price of our stock could fluctuate significantly, and you may not be able to resell your shares at an acceptable price. Those fluctuations could be based on various factors in addition to those otherwise described in this information statement, including those described under Risks Related to Our Business and the following:
|
our operating performance and the performance of our competitors or restaurant companies in general and fluctuations in our operating results; |
|
the publics reaction to our press releases, our other public announcements and our filings with the SEC; |
|
the failure of security analysts to cover our common stock after this offering or changes in earnings estimates or recommendations by research analysts who follow us or other companies in our industry; |
|
global, national or local economic, legal and regulatory factors unrelated to our performance; |
|
announcements by us or our competitors of new locations or menu items, capacity changes, strategic investments or acquisitions; |
|
actual or anticipated variations in our or our competitors operating results, and our and our competitors growth rates; |
|
failure by us or our competitors to meet analysts projections or guidance that we or our competitors may give the market; |
|
changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to our business; |
51
|
changes in accounting standards, policies, guidance, interpretations or principles; |
|
the arrival or departure of key personnel; |
|
the number of shares to be publicly traded after the distribution; |
|
future sales or issuances of our common stock, including sales or issuances by us, our officers or directors and our significant shareholders, including Newport; and |
|
other developments affecting us, our industry or our competitors. |
In addition, in recent years the stock market has experienced significant price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. These broad market and restaurant industry fluctuations, as well as general economic, political and market conditions such as recessions or interest rate changes, may cause declines in the market price of our common stock. If the market price of our common stock after the distribution does not exceed the initial trading price, you may not realize any return on your investment in us and may lose some or all of your investment.
As we operate in a single industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our managements attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.
The market price of our common stock could decline due to the number of shares of common stock eligible for future sale upon the exchange of Class B Units.
The market price of our common stock could decline as a result of issuances of additional shares of our common stock eligible for future sale upon the exchange of Class B Units, or the perception that such issuances could occur. These issuances, or the possibility that these issuances may occur, may also make it more difficult for us to raise additional capital by selling equity securities in the future, at a time and price that we deem appropriate. After completion of the spin-off, approximately 14.7% of the ownership interests in J. Alexanders Holdings, LLC will be Class B Units held by certain members of our management and the Management Consultant. Based on the value of J. Alexanders Holdings, LLC (determined primarily by reference to the trading price of our common stock) above a specified hurdle amount and time-based vesting provisions, vested Class B Units may be immediately exchanged for our common stock or, for those held by members of our management, for cash, at our option.
Our charter and bylaws and provisions of Tennessee law may discourage or prevent strategic transactions, including a takeover of our Company, even if such a transaction would be beneficial to our shareholders.
Provisions contained in our charter and bylaws and provisions of the Tennessee Business Corporation Act could delay or prevent a third party from entering into a strategic transaction with us, as applicable, even if such a transaction would benefit our shareholders. For example, our charter and bylaws:
|
divide our board of directors into three classes with staggered three-year terms, which may delay or prevent a change of our management or a change in control; |
52
|
authorize the issuance of blank check preferred stock that could be issued by us upon approval of our board of directors to increase the number of outstanding shares of capital stock, making a takeover more difficult and expensive; |
|
do not permit cumulative voting in the election of directors, which could otherwise make it easier for a smaller minority of shareholders to elect director candidates; |
|
do not permit shareholders to take action upon less than unanimous written consent; |
|
provide that special meetings of the shareholders may be called only by or at the direction of the board of directors, the chairman of our board of directors or the chief executive officer; |
|
require advance notice to be given by shareholders for any shareholder proposals or director nominees; |
|
require a super-majority vote of the shareholders to amend certain provisions of our charter; and |
|
allow our board of directors to make, amend or repeal our bylaws but only allow shareholders to amend or repeal our bylaws upon the approval of 66 2/3 % or more of the voting power of all of the outstanding shares of our capital stock entitled to vote. |
In addition, we are subject to certain provisions of Tennessee law that limit, in some cases, our ability to engage in certain business combinations with significant shareholders. See Description of Capital Stock.
These restrictions and provisions could keep us from pursuing relationships with strategic partners and from raising additional capital, which could impede our ability to expand our business and strengthen our competitive position. These restrictions could also limit shareholder value by impeding a sale of us or J. Alexanders Holdings, LLC.
Under the Tax Matters Agreement that we will enter into with FNF, we will generally be prohibited, except in specified circumstances, for specified periods of up to 24 months following the distribution from consenting to certain acquisitions of significant amounts of our stock.
As discussed above, an acquisition or further issuance of our equity securities could trigger a tax to FNF, requiring us under the Tax Matters Agreement to indemnify FNF for such tax. This indemnity obligation might discourage, delay or prevent a change of control that you may consider favorable.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will be influenced in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our common stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who cover us downgrades our common stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock prices and trading volume to decline.
53
We do not intend to pay dividends for the foreseeable future.
We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. Any future determination to declare and pay cash dividends will be at the discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and such other factors as our board of directors deems relevant. In addition, our current credit facility restricts our ability to pay dividends. Our ability to pay dividends may also be limited by covenants of any future outstanding indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it. See Dividend Policy.
We will incur increased costs as a result of being a public company.
As a public, exchange listed company, we expect to incur significant legal, accounting and other expenses that we did not incur as a private company, particularly after we are no longer an emerging growth company as defined under the JOBS Act. In addition, new and changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated and to be promulgated thereunder, as well as under the Sarbanes-Oxley Act, and the JOBS Act, have created uncertainty for public companies and increased costs and time that boards of directors and management must devote to complying with these rules and regulations. The Sarbanes-Oxley Act and related rules of the SEC and the NYSE regulate corporate governance practices of public companies. We expect compliance with these rules and regulations to increase our legal and financial compliance costs and lead to a diversion of management time and attention from revenue generating activities. For example, we will be required to adopt new internal controls and disclosure controls and procedures. In addition, we will incur additional expenses associated with our SEC reporting requirements. We currently estimate that the additional costs we will incur as a result of being a public company will range from $750,000 to $1,000,000 annually.
Our reported financial results may be adversely affected by changes in accounting principles applicable to us.
Generally accepted accounting principles in the U.S. are subject to interpretation by the Financial Accounting Standards Board (FASB), the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. In addition, the SEC has announced a multi-year plan that could ultimately lead to the use of International Financial Reporting Standards by U.S. issuers in their SEC filings. Any such change could have a significant effect on our reported financial results.
We are an emerging growth company and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.
We are an emerging growth company, as defined under the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies, but not to emerging growth companies, including, but not limited to, an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act, reduced disclosure about executive compensation arrangements pursuant to the rules applicable to smaller reporting companies and no requirement to seek non-binding advisory votes on executive compensation or golden
54
parachute arrangements. We have elected to adopt these reduced disclosure requirements. We may take advantage of these provisions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of our fiscal year following the fifth anniversary of the first sale of our common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, (2) the last day our first fiscal year in which we have total annual gross revenue of at least $1.0 billion, (3) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period and (4) the date on which we are deemed to be a large accelerated filer, which means the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to opt out of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
We cannot predict if investors will find our common stock less attractive as a result of our taking advantage of these exemptions. If some investors find our common stock less attractive as a result of our choices, there may be a less active trading market for our common stock and our stock price may be more volatile.
If we are unable to implement and maintain the effectiveness of our internal control over financial reporting, our independent registered public accounting firm may not be able to provide an unqualified report on our internal controls, which could adversely affect our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules adopted by the SEC and the PCAOB, starting with the second annual report that we file with the SEC after the consummation of the distribution, our management will be required to report on the effectiveness of our internal control over financial reporting. In addition, once we no longer qualify as an emerging growth company under the JOBS Act and lose the ability to rely on the exemptions related thereto discussed above, our independent registered public accounting firm will also need to attest to the effectiveness of our internal control over financial reporting under Section 404. We may encounter problems or delays in completing the implementation of any changes necessary to our internal control over financial reporting to conclude such controls are effective. If we conclude and, once we no longer qualify as an emerging growth company under the JOBS Act, our independent registered public accounting firm concludes, that our internal control over financial reporting is not effective, investor confidence and our stock price could decline.
Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of NYSE rules, and result in a breach of the covenants under our financing arrangements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect us and lead to a decline in the price of our common stock.
55
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Our charter and bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Tennessee law. In addition, we have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by our board of directors. We will enter into indemnification agreements with our director nominees and amended indemnification agreements with each of our directors and officers. Under the terms of such indemnification agreements, we are required to indemnify each of our directors and officers, to the fullest extent permitted by the laws of the State of Tennessee, if the basis of the indemnitees involvement was by reason of the fact that the indemnitee is or was a director or officer of the issuer or any of its subsidiaries or was serving at the issuers request in an official capacity for another entity. We must indemnify our officers and directors against all reasonable fees, expenses, charges and other costs of any type or nature whatsoever, including any and all expenses and obligations paid or incurred in connection with investigating, defending, being a witness in, participating in (including on appeal), or preparing to defend, be a witness or participate in any completed, actual, pending or threatened action, suit, claim or proceeding, whether civil, criminal, administrative or investigative, or establishing or enforcing a right to indemnification under the indemnification agreement. The indemnification agreements also require us, if so requested, to advance within 30 days of such request all reasonable fees, expenses, charges and other costs that such director or officer incurred, provided that such person will return any such advance if it is ultimately determined that such person is not entitled to indemnification by us. Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Future offerings of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future offerings of equity securities that may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.
In the future, we may attempt to increase our capital resources by making offerings of debt securities or additional offerings of equity securities. Upon bankruptcy or liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both, and may result in future limitations under the tax code that could reduce the rate at which we utilize any net operating loss carryforwards to reduce our taxable income. Preferred stock, if issued, could have a preference on liquidating distributions or a preference on dividend payments or both that could limit our ability to make a dividend distribution to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control and may have the effect of reducing the market price of our common stock and diluting their ownership interest in our Company.
56
We caution that certain information contained in this information statement is forward-looking information that involves risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements contained herein. All statements other than statements of historical fact included in this information statement, including our unaudited pro forma financial data, are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. Forward-looking statements are typically identified by words or phrases such as may, will, would, can, should, likely, anticipate, potential, estimate, pro forma, continue, expect, project, intend, seek, plan, believe, target, outlook, forecast, the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward-looking statements appear in a number of places throughout this information statement and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including among other things, the following risks and uncertainties:
|
the impact of, and our ability to adjust to, general economic conditions and changes in consumer preferences; |
|
our ability to open new restaurants and operate them profitably, including our ability to locate and secure appropriate sites for restaurant locations, obtain favorable lease terms, attract customers to our restaurants or hire and retain personnel; |
|
our ability to successfully develop and improve our Stoney River concept; |
|
our ability to successfully transition certain of our existing J. Alexanders locations to Redlands Grill locations; |
|
our ability to obtain financing on favorable terms, or at all; |
|
the strain on our infrastructure caused by the implementation of our growth strategy; |
|
the significant competition we face for customers, real estate and employees; |
|
the impact of economic downturns or other disruptions in markets in which we have revenue or geographic concentrations within our restaurant base; |
|
our ability to increase sales at existing J. Alexanders, Redlands Grill and Stoney River restaurants and improve our margins at existing Stoney River restaurants; |
|
the impact of increases in the price of, and/or reductions in the availability of, commodities, particularly beef; |
|
the impact of negative publicity or damage to our reputation, which could arise from concerns regarding food safety and food-borne illnesses or other matters; |
|
the impact of proposed and future government regulation and changes in healthcare, labor and other laws; |
57
|
our expectations regarding litigation or other legal proceedings; |
|
our inability to cancel and/or renew leases and the availability of credit to our landlords and other retail center tenants; |
|
operating and financial restrictions imposed by our credit facility, our level of indebtedness and any future indebtedness; |
|
the impact of the loss of key executives and management-level employees; |
|
our ability to enforce our intellectual property rights; |
|
the impact of information technology system failures or breaches of our network security; |
|
the impact of any future impairment of our long-lived assets, including goodwill; |
|
the impact of any future acquisitions, joint ventures or other initiatives; |
|
the impact of shortages, interruptions and price fluctuations on our ability to obtain ingredients from our limited number of suppliers; |
|
our expectations regarding the seasonality of our business; |
|
the impact of hurricanes and other weather-related disturbances; and |
|
the other matters described under Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Business. |
These factors should not be construed as exhaustive and should be read with the other cautionary statements in this information statement. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, Business and elsewhere in this information statement. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this information statement in the context of these risks and uncertainties.
58
Fidelity National Financial, Inc. Acquisition of Stoney River
Prior to April 2012, Stoney River was a steakhouse concept owned and operated by OCharleys, Inc., a multi-concept restaurant company that, as of December 25, 2011, operated and franchised over 340 restaurants under three concepts: OCharleys, Ninety Nine Restaurant, and Stoney River Legendary Steaks (the previous name of Stoney River Steakhouse and Grill).
In April 2012, FNF acquired OCharleys, Inc., which at that time was a publicly-traded company with shares of common stock listed for trading on the NASDAQ Global Select Market. OCharleys, Inc. became a wholly-owned subsidiary of FNFV. Upon completion of the foregoing transactions, the outstanding shares of common stock of OCharleys were delisted, and OCharleys, Inc. was subsequently converted into OCharleys, LLC. In May 2012, FNFV transferred its ownership in OCharleys, LLC to FNH, a joint venture controlled by FNFV and Newport.
Fidelity National Financial, Inc. Acquisition of J. Alexanders Corporation
In September 2012, FNF acquired JAC, which is the predecessor to J. Alexanders, LLC and at that time was a publicly-traded company with shares of common stock listed for trading on the NASDAQ Global Market. JAC became a wholly-owned subsidiary of FNFV. The outstanding shares of common stock of JAC were delisted upon consummation of the acquisition, and JAC was subsequently converted to J. Alexanders, LLC.
Structure Prior to the Reorganization Transactions
In February 2013, J. Alexanders Holdings, LLC was formed as a Delaware limited liability company by FNFV. On February 25, 2013, FNFV contributed 100% of the membership interests of J. Alexanders, LLC to J. Alexanders Holdings, LLC in exchange for a 72.1% membership interest in J. Alexanders Holdings, LLC and FNH contributed 100% of the membership interests of Stoney River Management Company, LLC and its subsidiaries and related assets (the Stoney River Assets) to J. Alexanders Holdings, LLC in exchange for a 27.9% membership interest in J. Alexanders Holdings, LLC. J. Alexanders Holdings, LLC then contributed the Stoney River Assets to J. Alexanders, LLC. Additionally, in February 2013, J. Alexanders Holdings, LLC assumed from FNFV a promissory note payable to FNF in the principal amount of $20,000,000 (the FNF Note). The FNF Note accrued interest at 12.5%, with the interest and principal due and payable in full on January 31, 2016. In May 2015, J. Alexanders Holdings, LLC repaid the FNF Note in full.
Restatement of Operating Agreement; Issuance of Class B Units
On January 1, 2015, J. Alexanders Holdings, LLC issued profits interests, designated as Class B Units, to members of our management, including our named executive officers. In connection therewith, J. Alexanders Holdings, LLC entered into an Amended and Restated Limited Liability Company Agreement with its members and adopted the 2015 Management Incentive Plan described below.
J. Alexanders Holdings, LLC Profits Interest Plan
On January 1, 2015, J. Alexanders Holdings, LLC adopted its 2015 Management Incentive Plan and granted equity incentive awards to our management team and other key employees in the form of Class B Units. The Class B Units are profits interests in J. Alexanders Holdings, LLC. Each Class B Unit represents a non-voting equity interest in J. Alexanders Holdings, LLC that entitles the holder to a percentage of the profits and appreciation in the equity value of J. Alexanders Holdings, LLC arising after the date of grant.
59
Holders of Class B Units will participate in allocations and distributions by J. Alexanders Holdings, LLC following such time as a specified hurdle amount has been previously distributed to holders of Units. The hurdle amount for the Class B Units issued to our management in January 2015 was set at $180 million, which at such time was a reasonable premium to the estimated liquidation value of the equity of J. Alexanders Holdings, LLC. The Class B Units issued to our management vest with respect to 50% of the Grant Units on the second anniversary of the date of grant and with respect to the remaining 50% on the third anniversary of the date of grant.
Vested Class B Units may be exchanged for, at our option, either (i) cash in an amount equal to the amount that would be distributed to the holder of those Class B Units by J. Alexanders Holdings, LLC upon a liquidation of J. Alexanders Holdings, LLC assuming the aggregate amount to be distributed to all members of J. Alexanders Holdings, LLC were equal to our market capitalization on the date of exchange, (net of any assets and liabilities of J. Alexanders Holdings Inc. that are not assets or liabilities of J. Alexanders Holdings, LLC) or (ii) shares of our common stock with a fair market value equal to the cash payment under (i) above.
The Class B Units issued to our management have been be classified as equity awards, and compensation expense based on the grant date fair-value is being recognized over the applicable vesting period of the grant in our consolidated financial statements.
In connection with the Reorganization Transactions, we issued additional Class B Units to the Management Consultant. For a description of the terms of these Class B Units, see Our Corporate Structure The Management Consultants Profits Interests.
Distribution of Interests in J. Alexanders Holdings, LLC
On August 18, 2014, FNH distributed its 27.9% interest in J. Alexanders Holdings, LLC to FNFV, Newport and certain individual equity holders in FNH. As a result of this distribution, FNH no longer holds an ownership interest in J. Alexanders Holdings, LLC.
Indebtedness
On September 3, 2013, we entered into a loan agreement with Pinnacle Bank for a credit facility that includes a three-year $1,000,000 revolving line of credit and a seven-year $15,000,000 mortgage loan (the Mortgage Loan). The Mortgage Loan presently bears interest at LIBOR plus 250 basis points, with a minimum interest rate of 3.25% per annum and a maximum interest rate of 6.25% per annum and will mature on October 3, 2020. The revolving line of credit note bears interest at LIBOR plus 250 basis points, with a minimum interest rate of 3.25% per annum. The revolving line of credit note will mature on September 3, 2016. We used proceeds from the Mortgage Loan to retire our previously outstanding mortgage debt.
On December 9, 2014, we executed an Amended and Restated Loan Agreement which encompasses the two existing credit facilities discussed above and also included a five-year, $15,000,000 development line of credit. On May 20, 2015, we executed a Second Amended and Restated Loan Agreement, which increased the development line of credit to $20,000,000 over a five-year term and also included a five-year, $10,000,000 term loan (the Term Loan), the proceeds of which were used to repay in full the $10,000,000 due under a note to FNF which was scheduled to mature January 31, 2016. Both the development line of credit and the Term Loan bear interest at LIBOR plus 220 basis points. The Term Loan is structured on an interest only basis for the first 24 months of the term, followed by a 36 month amortization period. The indebtedness outstanding under these facilities with Pinnacle Bank is secured by liens on certain personal property of J. Alexanders Holdings, LLC and its subsidiaries, subsidiary guarantees and a mortgage lien on certain real property.
60
The following diagram illustrates our corporate structure prior to the reorganization transactions.
The Reorganization Transactions
In anticipation of an initial public offering of our shares, beginning in August 2014 we commenced an internal restructuring that will result in the organizational and ownership structure described below immediately prior to the distribution. We refer to these transactions as the reorganization transactions.
Formation of J. Alexanders Holdings, Inc.
The issuer was incorporated in the State of Tennessee on August 15, 2014 for the initial purpose of engaging in an initial public offering and has engaged only in activities in contemplation of such offering and the distribution. Upon its formation, 1,000 shares of common stock were issued to FNFV in exchange for a nominal cash purchase price equal to the par value of such shares.
Contributions of J. Alexanders Holdings, LLC to J. Alexanders Holdings and J. Alexanders Holdings to FNF
In June 2015, FNFV formed JAX Investments and transferred to it 1% of the Class A membership interests in J. Alexanders Holdings, LLC. Prior to the distribution, FNFV, Newport, and all holders of membership interests in J. Alexanders Holdings, LLC, other than JAX Investments and the holders of Class B Units, will exchange their membership interests in J. Alexanders Holdings, LLC for shares of our common stock. These transactions will result in (i) us holding directly and indirectly 100% of the Class A membership interests in J. Alexanders Holdings, LLC; and (ii) FNF owning 87.44% of our common stock immediately prior to the distribution.
61
The Management Consultant
In connection with the distribution, J. Alexanders Holdings, LLC will enter into a management consulting agreement (the Management Consulting Agreement) with Black Knight Advisory Services, LLC (the Management Consultant), a newly formed limited liability company owned by certain officers and directors of FNFV and J. Alexanders Holdings, Inc. The Management Consultant will provide corporate and strategic advisory services to us. Under the Management Consulting Agreement, we will (i) issue Class B units to the Management Consultant, as described below, and (ii) pay the Management Consultant an annual base fee equal to 3% of our Adjusted EBITDA for each fiscal year during the term of the Management Consulting Agreement. We will also reimburse the Management Consultant for its direct out-of-pocket costs incurred for management services provided to us. The Management Consulting Agreement will continue in effect for an initial term of seven years and will be renewed for successive one-year periods thereafter unless earlier terminated (i) by us upon at least six months prior notice or (ii) by the Management Consultant upon 30 days prior notice. In the event that we terminate or either we or the Management Consultant fail to renew the Management Consulting Agreement prior to the tenth anniversary thereof, we will be obligated to pay to the Management Consultant an early termination payment equal to the product of (i) the annual base fee for the most recent fiscal year and (ii) the difference between ten and the number of years that have elapsed under the Management Consulting Agreement, provided that in the event of such a termination following a change of control event with respect to us, the multiple of the annual base fee to be paid to the Management Consultant shall not exceed three. In addition, all unvested Class B Units will become immediately vested.
The principals of the Management Consultant and our executive management team have complementary skills. Specifically, our executive management team has substantial experience in the restaurant industry, particularly the upscale dining segment, and the principals of the Management Consultant have substantial experience in mergers, acquisitions, accessing public capital markets, and corporate governance, as well as extensive knowledge of and input on our business, strategic plan, and finances. Rather than hiring additional executive management personnel with these skills or outsourcing to another consulting firm without the experience, background and insight on our business, we determined that using the services of the Management Consultant was the most cost effective way to provide us with these services. Factors considered included the cost savings from screening, recruiting and hiring such persons into our Company, reducing the burden on our operational management team to integrate and educate new officers or consultants, and the fact that the compensation payable to the Management Consultant is based on the performance of the Company.
The Management Consultants Profits Interest
Immediately prior to the distribution, J. Alexanders Holdings, LLC will amend and restate its operating agreement to, among other things, (i) reflect the new members of J. Alexanders Holdings, LLC and (ii) provide for the issuance to the Management Consultant of non-voting Class B Units, in an amount equal to 10% of the outstanding units of J. Alexanders Holdings, LLC. Each Class B Unit represents an equity interest in J. Alexanders Holdings, LLC that entitles the holder to a percentage of the profits and appreciation in the equity value of J. Alexanders Holdings, LLC arising after the date of grant. The Class B Units issued to the Management Consultant will vest in equal installments over a three year period. The Class B Units issued to the Management Consultant will vest in full upon a change in control of us, our termination of the Management Consulting Agreement without cause, failure to renew the Management Consulting Agreement any time prior to the ten year anniversary thereof, or the termination of the Management Consulting Agreement by the Management Consultant as a result of our breach of the Management Consulting Agreement. Distributions with respect to the Class B Units will only be made in the event that certain specified hurdle amounts have been achieved. At the request of the holder, vested Class B Units may be exchanged for shares of our common stock.
62
Following the termination of the Management Consulting Agreement for any reason, the Management Consultant will have 90 days to exchange its vested Class B Units. After the expiration of this 90-day period, any Class B Units then held by the Management Consultant will be forfeited. For more information regarding the Class B Units, see Certain Relationships and Related Party Transactions Management Consulting Agreement.
The diagram below shows our organizational structure immediately following the completion of the reorganization transactions described herein and the distribution.
See Certain Relationships and Related Party Transactions.
63
General
On February 18, 2015, FNF announced its intention to pursue the disposition of our Company through the distribution of our common stock to holders of FNFV common stock.
On [ ], FNF announced a dividend on FNFV common stock consisting of all of the shares of our common stock that FNF will own on the date of the distribution. These shares will represent 87.44% of our outstanding shares of common stock immediately prior to the distribution. The dividend will be paid on [ ], 2015, the distribution date, in the amount of 0.16391 shares of our common stock for every one outstanding share of FNFV common stock as described below to each stockholder on [ ], 2015, the record date.
Please note that you will not be required to pay any cash or other consideration for the shares of our common stock distributed to you or to surrender or exchange your shares of FNFV common stock to receive the dividend of our common stock.
The Distribution as described in this information statement is subject to the satisfaction or waiver of certain conditions. We cannot provide any assurances that the Distribution will be completed. Please see Certain Relationships and Related Party Transactions Agreements with FNF for additional information.
Reasons for the Distribution
Currently, FNF is engaged, through its subsidiaries, in multiple business segments in the United States and around the world as follows:
FNF Core Operations
|
Title. This segment consists of the operations of FNFs title insurance underwriters and related businesses. This segment provides core title insurance and escrow and other title related services including collection and trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty insurance. This segment also includes the transaction services business consisting of other title related services used in production and management of mortgage loans, including mortgage loans that go into default. |
|
BKFS. This segment provides core technology and data and analytics services through leading software systems and information solutions that facilitate and automate many of the business processes across the life cycle of a mortgage. |
|
FNF Core Corporate and Other. This segment consists of the operations of FNFs holding company, certain other unallocated corporate overhead expenses, and other smaller real estate and insurance related operations. |
FNFV
|
Restaurant Group . This segment consists of our operations and the operations of ABRH, in which FNF has a 55% ownership interest. ABRH is the owner and operator of the OCharleys, Ninety Nine Restaurants, Max & Ermas, Village Inn and Bakers Square concepts. |
64
|
FNFV Corporate and Other. This segment primarily consists of FNFs share in the operations of certain of its equity investments, including Ceridian, Digital Insurance in which FNF owns 96%, and other smaller operations which are not title related. |
In 2014, and continuing into 2015, FNFs senior management and board of directors undertook a strategic review of FNFs businesses, including an assessment of the market and growth characteristics of each of its businesses and the role of each business within FNFs overall business portfolio. Factors considered by FNFs management and board of directors as part of the strategic review included:
|
portfolio clarification and enhanced management focus holders of FNFV common stock will benefit from portfolio clarity as separating our upscale dining concepts business from FNFs other business will allow each management team greater flexibility to pursue growth strategies and allocate capital appropriately within their respective market opportunities; |
|
favorable market characteristics upscale dining is a large and fast growing market with different valuation methodologies, capital requirements and marketing efforts, and we are well-positioned to capitalize on this opportunity; |
|
favorable market conditions and competitive position for the upscale dining concepts business the upscale dining industry has rebounded substantially since 2009, and FNF concluded that we are uniquely positioned to execute against opportunities throughout the United States; |
|
FNF cash deploymentgiven FNFs positive cash balance and strong cash flows, FNFs management and board of directors weighed alternatives available to return excess cash to holders of FNFV common stock; |
|
effecting an initial public offering of our shares after filing a registration statement in 2014 with the SEC to register our shares for a proposed underwritten public offering of our common stock, FNFs management and board of directors concluded that due to prevailing market valuations, the distribution of our common stock to holders of FNFV common stock would provide greater value to our stockholders, and placed the proposed IPO on hold while the concept of the current proposed structure was being pursued; and |
|
potential benefits and detriments of separating the upscale dining concepts business- FNFs management and board of directors considered the potential benefits and detriments that could result from a spin-off, including: (i) potential market reaction to the increased autonomy and flexibility afforded to J. Alexanders to pursue its growth strategies; (ii) potential market perception of J. Alexanders no longer being part of FNF; (iii) potential perception of employees of J. Alexanders if separated from FNF; and (iv) the significant management time and effort required to effect the spin-off. |
65
As a result of this strategic review, FNFs management and board of directors believe it is in the best interests of holders of FNFV common stock to separate the upscale dining concepts business from FNFs other businesses. FNFs management and board of directors believe that the separation will allow the creation of an independent public company focused on the upscale dining concepts which would be better positioned in managements view to meet our long-term revenue growth objectives and generate stockholder value. FNFs management and board of directors both believe that the upscale dining concepts business will have the opportunity to benefit from the increased fit and focus of a separation including:
|
Management Focus . We will have increased autonomy to pursue our strategic initiatives, acquisitions and other growth opportunities that may not be appropriate under the current combined structure and to deploy our capital as our management team sees fit and FNF would be insulated from any risks inherent in those pursuits. |
|
Strategic Focus . FNF management will have a sharpened focus on its title, information mortgage services and other businesses. |
|
Investor Transparency . A separation will provide greater transparency for investors in J. Alexanders. |
|
Investor Alignment . Separate, publicly traded equity securities will provide greater alignment of management incentives with stockholder interests. |
|
Enhanced Stock Value. Because the FNFV common stock represents the economic performance of a basket of equity securities, it trades primarily with reference to the FNFV business segments net asset value. This value may be less than the full, undiscounted value of the assets underlying the FNFV business segments. The discount in value is attributable to a variety of factors, including FNFs holding company status (the Holding Company Discount), the complexity of the tracking stock structure (the Tracking Stock Discount), and multiple layers of financial reporting. Following the distribution, we will own the upscale dining concepts business and holders of FNFV common stock will also hold the single class of our stock. Thus, the restructuring will eliminate the holding company and tracking stock arrangement with respect to the upscale dining concepts business which is intended to reduce the Holding Company Discount and Tracking Stock Discount now applied to the FNFV common stock. Accordingly, as discussed in more detail below, FNF believes that our and FNFs ability to use stock to make acquisitions and compensate employees will be enhanced. |
|
Growth through Acquisitions . We intend to continue to grow our business, both organically and through acquisitions, and may, at times, issue equity as consideration for such future acquisition. Reducing the Holding Company Discount and Tracking Stock Discount is intended to enable us to issue equity at a higher valuation multiple following the distribution thereby enhancing our ability to make such acquisitions. |
|
Improve Management and Executive Compensation. FNF now seeks, and following the distribution both we and FNF will continue to seek, to attract and retain highly qualified management and employees through incentive programs that include equity-based compensation. Under FNFs Omnibus Plan, key employees can receive restricted stock, stock options, stock appreciation rights, restricted stock units, performance shares, performance units or other stock-based awards referencing shares of FNFV common stock. Following the distribution, we will implement a similar |
66
equity-based compensation plan. Any aggregate increase in value to the FNFV common stock and J. Alexanders common stock that may result from the distribution may enhance equity rights that officers and employees already have in FNFV common stock. Accordingly, the distribution may provide both us and FNF with a more effective tool to motivate and reward employees and management. Further, FNF management believes that more directly aligning the interests of the employees of the upscale dining concepts business with the interests of the upscale dining concepts business will allow us to better attract prospective employees with appropriate skill sets, motivate key employees, and retain key employees for the long term. |
|
Optimization of Debt and Equity Structures. Following the distribution, our debt will not be consolidated on the FNF balance sheet. This is expected to benefit us by permitting us to (i) more easily raise debt capital to support future acquisitions and (ii) optimize our capital structure. |
FNFs management and board of directors believe that given our experienced management team, position in the marketplace, and strong cash flows, we will be able to advance our business goals and strategic growth initiatives.
The Number of Shares You Will Receive
It is expected that for every one share of FNFV common stock that you own at 5:00 p.m., New York City time on [ ], 2015, the record date, you will receive 0.16391 shares of our common stock on the distribution date.
It is important to note that if you sell your shares of FNFV common stock between the record date and the distribution date in the regular way market, you will also be selling your right to receive the share dividend in the distribution. Please see Trading Between the Record Date and Distribution Date for more information.
Trading Between the Record Date and Distribution Date
Beginning on [ ], 2015 and continuing up to and including [ ], 2015, the distribution date, there are expected to be two markets in FNFV common stock: a regular way market and an ex-distribution market. Shares of FNFV common stock that trade on the regular way market will trade with an entitlement to shares of our common stock to be distributed in the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of our common stock to be distributed in the distribution. Therefore, if you own shares of FNFV common stock at 5:00 p.m., New York City time, on the record date and sell those shares on the regular way market on or prior to the distribution date, you will also be selling the shares of our common stock that would have been distributed to you in the distribution. However, if you sell those shares of FNFV common stock on the ex-distribution market on or prior to the distribution date, you will still receive the shares of our common stock that were to be distributed to you in the distribution based on your ownership of the shares of FNFV common stock.
Furthermore, beginning on [ ] , 2015 and continuing up to and including the distribution date, there is expected to be a when-issued trading market in our common stock. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The when-issued trading market will be a market for shares of our common stock that will be distributed to holders of FNFV common stock on the distribution date. If you owned shares of FNFV common stock at 5:00 p.m., New York City time, on the record date, then you are entitled to shares of our common stock to be distributed in the distribution. You may trade this
67
entitlement to shares of our common stock, without the shares of FNFV common stock that you own, on the when-issued trading market. On the first trading day following the distribution date, when-issued trading with respect to our common stock will end and regular way trading will begin.
When and How You Will Receive the Dividend
FNF will pay the dividend on [ ], 2015 by releasing its shares of our common stock to be distributed in the distribution to Computershare, the distribution agent. As part of the distribution, we will adopt a book-entry share transfer and registration system for our common stock. This means that instead of receiving physical share certificates, registered holders of FNFV common stock entitled to the distribution will have their shares of our common stock distributed on the date of the distribution credited to book-entry accounts established for them by our transfer agent. The transfer agent will mail an account statement to each such registered holder stating the number of shares of our common stock credited to the holders account.
For those holders of FNFV common stock who hold their shares through a broker, bank or other nominee, our transfer agent will credit the shares of our common stock to the accounts of those nominees who are registered holders, who, in turn, will credit their customers accounts with our common stock. We and FNF anticipate that brokers, banks and other nominees will generally credit their customers accounts with our common stock on the same day that their accounts are credited, which is expected to be the distribution date.
The distribution agent will not deliver any fractional shares of our common stock in connection with the distribution. Instead, the distribution agent will aggregate all fractional shares and sell them on behalf of those holders who otherwise would be entitled to receive a fractional share. We anticipate that these sales will occur between the record date and the distribution date. Such holders will then receive a cash payment in an amount equal to their pro rata share of the total net proceeds of those sales. Such cash payments will be made to the holders in the same accounts in which the underlying shares are held. If you physically hold FNFV stock certificates, your check for any cash that you may be entitled to receive instead of fractional shares of our common stock will be included together with the account statement in the mailing that our transfer agent expects to send out on the distribution date.
None of FNF, our company, the distribution agent or our or FNFs transfer agent will guarantee any minimum sale price for the fractional shares of our common stock. Neither our company nor FNF will pay any interest on the proceeds from the sale of fractional shares.
Material U.S. Federal Income Tax Consequences of the Distribution
The following discussion summarizes the material U.S. federal income tax consequences of the distribution for a U.S. holder of FNFV common stock (international holders of FNFV common stock should consult their own tax advisors) that holds such common stock as a capital asset for tax purposes. The discussion is of a general nature and does not purport to deal with persons in special tax situations, including, for example, financial institutions, insurance companies, regulated investment companies, dealers in securities or currencies, traders in securities that elect to use a mark-to-market method of accounting for securities holdings, tax exempt entities, persons holding FNFV common stock in a tax-deferred or tax-advantaged account or persons holding FNFV common stock as a hedge against currency risk, as a position in a straddle, or as part of a hedging or conversion transaction for tax purposes.
This summary applies only to U.S. holders. A U.S. holder is a beneficial owner of FNFV common stock that is (i) an individual U.S. citizen or resident, (ii) a U.S. domestic corporation or other entity taxable as a corporation or (iii) otherwise subject to U.S. federal income tax on a net income basis in respect of such common stock.
68
This summary does not address all of the tax considerations that may be relevant to a holder of FNFV common stock. For example, we do not address:
|
the U.S. federal income tax consequences applicable to a stockholder that is treated as a partnership for U.S. federal income tax purposes; |
|
the U.S. federal income tax consequences applicable to stockholders in, or partners, members or beneficiaries of, an entity that holds FNFV common stock; |
|
the U.S. federal estate, gift or alternative minimum tax consequences of the distribution; |
|
the tax considerations relevant to U.S. holders whose functional currency is not the U.S. dollar; or |
|
the tax considerations relevant to holders of FNFV employee stock options, restricted stock or other compensatory awards. |
This summary is based on laws, regulations, rulings, interpretations and decisions now in effect, all of which are subject to change, possibly on a retroactive basis. It is not intended to be tax advice.
You should consult your own tax advisor as to all of the tax consequences of the distribution to you in light of your own particular circumstances, including the consequences arising under state, local and foreign tax laws, as well as possible changes in tax laws that may affect the tax consequences described herein.
General
FNF has requested an opinion from KPMG LLP, its tax advisor, to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the opinion, the distribution will qualify as a transaction that is tax-free under Section 355 and other provisions of the Code, and the distribution is conditioned upon the receipt by FNF of such favorable opinion confirming the distributions tax-free status.
Subject to the discussion below relating to the receipt of cash in lieu of fractional shares, if the distribution qualifies fully as tax-free, then, in general, for U.S. federal income tax purposes:
|
no gain or loss will be recognized by, and no amount will be includible in the income of, FNF as a result of the distribution, other than taxes arising out of foreign and other internal restructurings undertaken in connection with the separation and with respect to any excess loss account or intercompany transaction required to be taken into account under Treasury regulations relating to consolidated returns; |
|
no gain or loss will be recognized by, and no amount will be includible in the income of, a U.S. holder of FNFV common stock solely as a result of the receipt of our common stock in the distribution; |
|
the holding period for our common stock received in the distribution will include the period during which the FNFV common stock was held; and |
|
the tax basis of the FNFV common stock immediately prior to the distribution will be apportioned between such FNFV common stock and the shares of our common stock received, including any fractional share of our common stock deemed received in the distribution, based upon relative fair market values at the time of the distribution. |
69
An opinion of our advisors represents their best professional judgment but is not binding on the IRS or any court. The opinion will be based upon various factual representations and assumptions, as well as certain undertakings made by FNF and J. Alexanders Holdings. If any of those factual representations or assumptions are untrue or incomplete in any material respect, any undertaking is not complied with, or the facts upon which the opinion will be based are materially different from the facts at the time of the distribution, the distribution may not qualify for tax-free treatment. If, on audit, the IRS were successful in asserting the position that the distribution is taxable, the above consequences would not apply and both FNF and holders of FNFV common stock could be subject to tax.
If the distribution were taxable to FNF and the holders of FNFV common stock, then in general:
|
FNF would recognize a gain equal to the excess of the sum of the fair market value of our common stock on the date of the distribution over FNFs tax basis in our common stock; |
|
Each U.S. holder of FNFV common stock that receives shares of our common stock in the distribution would be treated as if the U.S. holder received a taxable distribution equal to the full value of the shares of our common stock received, which would be taxed (i) as a dividend to the extent of the U.S. holders pro rata share of FNFVs current and accumulated earnings and profits (including the gain to FNFV described in the preceding bullet point), then (ii) as a non-taxable return of capital to the extent of the U.S. holders tax basis in its FNFV common stock, and finally (iii) as capital gain with respect to the remaining value; |
|
an individual U.S. holder would generally be subject to U.S. federal income tax at favorable rates with respect to the portion of the distribution that was treated as a dividend or capital gain, subject to exceptions for certain short-term and hedged positions (including positions held for one year or less, in the case of a capital gain), which could give rise to tax at ordinary income rates; and |
|
a U.S. holder would not be subject to U.S. federal income tax with respect to the portion of the distribution that was treated as a return of capital, although its tax basis in its FNFV common stock would thereby be reduced. |
If the IRS were successful in asserting the position that the distribution is taxable, we could be required to indemnify FNF (including in respect of claims asserted by its stockholders) for the taxes described above and related losses. In addition, current tax law generally creates a presumption that the distribution would be taxable to FNF, but not to the holders of FNFV common stock, if we or our stockholders were to engage in a transaction that would result in a 50% or greater change by vote or by value in our stock ownership during the two-year period beginning on the distribution date, unless it is established that the distribution and the transaction are not part of a plan or series of related transactions to effect such a change in ownership. If the distribution were taxable to FNF due to such a 50% or greater change in our stock ownership, FNF would recognize a gain equal to the excess of the fair market value of our common stock on the date of the distribution over FNFs tax basis therein and we could be required to indemnify FNF for the tax on such gain and related losses. See Certain Relationships and Related Party TransactionsRelated Party TransactionsAgreements with FNFTax Matters Agreement.
70
Cash in Lieu of Fractional Shares
No fractional shares of our common stock will be issued in the distribution. All fractional shares resulting from the distribution will be aggregated and sold by the distribution agent, and the proceeds will be distributed to the owners of such fractional shares. A holder that receives cash in lieu of a fractional share of our common stock as a part of the distribution will generally recognize capital gain or loss measured by the difference between the cash received for such fractional share and the holders tax basis in the fractional share determined as described under The DistributionGeneral above. An individual U.S. holder would generally be subject to U.S. federal income tax at favorable rates with respect to such a capital gain, assuming that the U.S. holder had held all of its FNFV common stock for more than one year.
Payments of cash in lieu of a fractional share of our common stock made in connection with the distribution may, under certain circumstances, be subject to backup withholding and information reporting, unless a holder provides proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with the requirements of the backup withholding rules. Corporations and non-U.S. holders will generally be exempt from backup withholding, but may be required to provide a certification to establish their entitlement to the exemption. Backup withholding does not constitute an additional tax, but is merely an advance payment that may be refunded or credited against a holders U.S. federal income tax liability if the required information is supplied to the IRS.
Information Reporting
U.S. Treasury regulations require certain U.S. holders that receive our common stock pursuant to the distribution to attach to their U.S. federal income tax return for the year in which the distribution occurs a statement setting forth certain information relating to the distribution. Within a reasonable period after the distribution, FNF will provide holders of FNFV common stock who receive our common stock in the distribution with the information necessary to comply with such requirement. In addition, all U.S. holders are required to retain permanent records relating to the amount, basis, and fair market value of our common stock received in the distribution and to make those records available to the IRS upon request.
We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness, and therefore we do not anticipate paying any cash dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock will be limited by restrictions on the ability of our subsidiaries and us to pay dividends or make distributions under the terms of current and any future agreements governing our indebtedness. Any future determination to declare and pay cash dividends will be at the discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and such other factors as our board of directors deems relevant.
In addition, since we are a holding company, substantially all of the assets shown on our consolidated balance sheet are held by our subsidiaries. Accordingly, our earnings, cash flow and ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends. The ability of our subsidiaries to pay dividends is currently restricted by the terms of our credit facility and may be further restricted by any future indebtedness we or they incur. Accordingly, you may need to sell your shares of our common stock to realize a return on your investment. See Risk FactorsRisks Related to Ownership of Our Common StockWe do not intend to pay dividends for the foreseeable future.
71
The following table sets forth our capitalization as of March 29, 2015 on (i) an actual basis and (ii) a pro forma basis, assuming the separation, the distribution and the other transactions described in this information statement had occurred on March 29, 2015.
This table should be read in conjunction with Selected Historical Consolidated Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto appearing elsewhere in this information statement. We are providing the capitalization table below for information purposes only, and it may not reflect the capitalization or financial condition that would have resulted had we been operating as a separate, independent entity on March 29, 2015 and is not necessarily indicative of our future capitalization or financial condition.
As of March 29, 2015 | ||||||||
Dollars in thousands |
J. Alexanders
Holdings, LLC Actual(1) |
J. Alexanders
Holdings, Inc. Pro Forma(2) |
||||||
|
|
|||||||
Cash and cash equivalents |
$ | 11,955 | $ | 9,071 | ||||
|
|
|
|
|||||
Debt(2): |
||||||||
FNF Note |
$ | 10,000 | $ | - | ||||
Pinnacle Bank Credit Facility |
12,500 | 22,500 | ||||||
|
|
|||||||
Total debt |
22,500 | 22,500 | ||||||
|
|
|||||||
Members/shareholders equity: |
||||||||
Members equity |
101,791 | - | ||||||
Preferred stock, $0.001 par value, 10 million shares authorized, no shares outstanding actual or pro forma as adjusted |
- | - | ||||||
Common stock, $0.001 par value per share, 30 million shares authorized, no shares outstanding actual and 15 million shares outstanding pro forma as adjusted |
- | 15 | ||||||
Additional paid in capital |
- | 87,144 | ||||||
Retained earnings |
- | (2,500 | ) | |||||
Non-controlling interests |
- | 14,632 | ||||||
|
|
|||||||
Total members/shareholders equity |
101,791 | 99,291 | ||||||
|
|
|||||||
Total capitalization |
$ | 124,291 | $ | 121,791 | ||||
|
|
(1) |
As of March 29, 2015, J. Alexanders Holdings, LLC directly or indirectly held all of our assets and liabilities, and J. Alexanders Holdings, Inc., which was incorporated on August 15, 2014, did not hold any significant assets or liabilities. Accordingly, the actual capitalization as of March 29, 2015 presents that of J. Alexanders Holdings, LLC. |
(2) |
Debt amounts do not include accrued interest. |
72
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated statements of operations for the three months ended March 29, 2015 and the fiscal year ended December 28, 2014 present our consolidated results of operations giving pro forma effect to the reorganization transactions and the distribution as if they had occurred at the beginning of fiscal 2014. The unaudited pro forma consolidated balance sheet as of March 29, 2015 presents our unaudited pro forma consolidated balance sheet giving pro forma effect to the reorganization transactions and the distribution as if they had occurred as of the balance sheet date. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the reorganization transactions and the distribution on the historical financial information of J. Alexanders Holdings, LLC.
The unaudited pro forma consolidated statements of operations and balance sheet information should be read in conjunction with information found in Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes thereto appearing elsewhere in this information statement.
In connection with the distribution and the related transactions, we will record in our consolidated statement of operations at the time of the transaction, a one-time charge of $2,500,000 related to the payment of special recognition bonuses to certain senior executives and other employees as described in Executive Compensation Narrative Disclosure to Summary Compensation Table Special Recognition Bonus. Because this charge is non-recurring in nature, we have not given effect to this transaction in the unaudited pro forma consolidated statements of operations. However, this has been reflected as an adjustment to retained earnings in the unaudited pro forma consolidated balance sheet as of March 29, 2015.
The unaudited pro forma consolidated financial information is included for informational purposes only and does not purport to reflect our results of operations or financial position that would have occurred had we operated as a public company during the periods presented. The unaudited pro forma consolidated financial information should not be relied upon as being indicative of our results of operations or financial condition had the reorganization transactions and the spin-off occurred on the dates assumed. The unaudited pro forma consolidated financial information also does not project our results of operations or financial position for any future period or date.
73
Unaudited Pro Forma Consolidated Balance Sheet
As of March 29, 2015
(in thousands)
|
J. Alexanders
Holdings, LLC (1) |
|
|
Reorganization
and Distribution Adjustments |
|
|
J. Alexanders
Holdings, Inc. Pro Forma |
|
||||
Assets | ||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 11,955 | $ | (2,884) | (10)(12) | $ | 9,071 | |||||
Accounts and notes receivable |
242 | - | 242 | |||||||||
Accounts receivable from related party |
11 | - | 11 | |||||||||
Inventories |
2,115 | - | 2,115 | |||||||||
Prepaid expenses and other current assets |
4,480 | (1,675) | (11) | 2,805 | ||||||||
|
|
|
|
|
|
|||||||
Total current assets |
18,803 | (4,559 | ) | 14,244 | ||||||||
Other assets |
4,322 | - | 4,322 | |||||||||
Property and equipment, at cost, less accumulated depreciation and amortization of $19,542 as of March 29, 2015 |
86,457 | - | 86,457 | |||||||||
Goodwill |
15,737 | - | 15,737 | |||||||||
Trade name and other indefinite-lived intangibles |
25,155 | - | 25,155 | |||||||||
Deferred Charges, less accumulated amortization of $131 as of March 29, 2015 |
471 | - | 471 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 150,945 | (4,559 | ) | $ | 146,386 | ||||||
|
|
|
|
|
|
|||||||
Liabilities and Membership Equity | ||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 4,155 | $ | - | $ | 4,155 | ||||||
Accrued expenses and other current liabilities |
9,618 | (1,675) | (11) | 7,943 | ||||||||
Accrued expenses due to related party |
384 | (384) | (12) | - | ||||||||
Unearned revenue |
2,586 | - | 2,586 | |||||||||
Current portion of long-term debt and obligations under capital leases |
1,667 | - | 1,667 | |||||||||
|
|
|
|
|
|
|||||||
Total current liabilities |
18,410 | (2,059 | ) | 16,351 | ||||||||
Long-term debt and obligations under capital leases, net of portion classified as current |
10,833 | 10,000 | (12) | 20,833 | ||||||||
Long-term debt due to related party |
10,000 | (10,000) | (12) | - | ||||||||
Deferred compensation obligations |
5,633 | - | 5,633 | |||||||||
Other long-term liabilities |
4,278 | - | 4,278 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
49,154 | (2,059 | ) | 47,095 | ||||||||
Members / shareholders equity: |
||||||||||||
Members equity |
101,791 | (101,791) | (2) | - | ||||||||
Preferred stock, $0.001 par value, 10 million shares authorized, no shares outstanding actual or pro forma adjusted |
- | - | - | |||||||||
Common stock, $0.001 par value per share, 30 million shares authorized, no shares outstanding actual and 15 million shares outstanding pro forma adjusted |
15 | (2)(3) | 15 | |||||||||
Additional paid in capital |
- | 87,144 | (2)(3)(4) | 87,144 | ||||||||
Retained earnings |
(2,500) | (10) | (2,500) | |||||||||
|
|
|
|
|
|
|||||||
Total members / shareholders equity attributable to J. Alexanders Holdings, Inc. |
101,791 | (17,132 | ) | 84,659 | ||||||||
Non-controlling interests |
- | 14,632 | (4) | 14,632 | ||||||||
Total liabilities and equity |
$ | 150,945 | $ | (4,559 | ) | $ | 146,386 | |||||
|
|
|
|
|
|
74
Unaudited Pro Forma Consolidated Statement of Operations
For the Three Months ended March 29, 2015
(in thousands, except per share data)
|
J. Alexanders
Holdings, LLC (1) |
|
|
Reorganization
and Distribution Adjustments |
|
|
J. Alexanders Holdings,
Inc. Pro Forma |
|
||||||
|
|
|||||||||||||
Net sales |
$ | 56,184 | $ | - | $ | 56,184 | ||||||||
Costs and expenses: |
||||||||||||||
Cost of sales |
17,447 | - | 17,447 | |||||||||||
Restaurant labor and related costs |
16,415 | - | 16,415 | |||||||||||
Depreciation and amortization of restaurant property and equipment |
1,994 | - | 1,994 | |||||||||||
Other operating expenses |
10,910 | - | 10,910 | |||||||||||
|
|
|
|
|
|
|||||||||
Total restaurant operating expenses |
46,766 | - | 46,766 | |||||||||||
Transaction and integration expenses |
62 | (62 | ) | (11) | - | |||||||||
General and administrative expenses |
3,977 | 1,133 | (5)(6)(7) | 5,110 | ||||||||||
Asset impairment charges and restaurant closing costs |
1 | - | 1 | |||||||||||
Pre-opening expense |
2 | - | 2 | |||||||||||
|
|
|
|
|
|
|||||||||
Total operating expenses |
50,808 | 1,071 | 51,879 | |||||||||||
|
|
|
|
|
|
|||||||||
Operating income |
5,376 | (1,071 | ) | 4,305 | ||||||||||
Other income (expense): |
||||||||||||||
Interest expense |
(443) | 257 | (12) | (186 | ) | |||||||||
Other, net |
28 | - | 28 | |||||||||||
|
|
|
|
|
|
|||||||||
Total other income (expense) |
(415) | 257 | (158 | ) | ||||||||||
|
|
|
|
|
|
|||||||||
Income from continuing operations before income taxes |
4,961 | (814 | ) | 4,147 | ||||||||||
Income tax (expense) benefit |
(82) | (1,494 | ) | (8) | (1,576 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Income from continuing operations |
4,879 | (2,308 | ) | 2,571 | ||||||||||
Income from continuing operations attributable to non-controlling interests |
- | 379 | (4) | 379 | ||||||||||
Income from continuing operations attributable to J. Alexanders Holdings, Inc. |
$ | - | $ | 2,192 | $ | 2,192 | ||||||||
|
|
|
|
|
|
|||||||||
Earnings per share: |
||||||||||||||
Weighted average of common stock outstanding |
||||||||||||||
Basic |
N/A | 15,000 | ||||||||||||
Diluted |
N/A | 17,335 | ||||||||||||
Income from continuing operations available to common shareholders per share (9) |
||||||||||||||
Basic |
N/A | $ | 0.15 | |||||||||||
Diluted |
N/A | $ | 0.13 |
75
Unaudited Pro Forma Consolidated Statement of Operations
For the year ended December 28, 2014
(in thousands, except per share data)
|
J. Alexanders
Holdings, LLC (1) |
|
|
Reorganization
and Distribution Adjustments |
|
|
J. Alexanders
Holdings, Inc. Pro Forma |
|
||||||
|
|
|||||||||||||
Net sales |
$ | 202,233 | $ | - | $ | 202,233 | ||||||||
Costs and expenses: |
||||||||||||||
Cost of sales |
64,591 | - | 64,591 | |||||||||||
Restaurant labor and related costs |
61,539 | - | 61,539 | |||||||||||
Depreciation and amortization of restaurant property and equipment |
7,652 | - | 7,652 | |||||||||||
Other operating expenses |
40,440 | - | 40,440 | |||||||||||
|
|
|
|
|
|
|||||||||
Total restaurant operating expenses |
174,222 | - | 174,222 | |||||||||||
Transaction and integration expenses |
785 | (785) | (11) | - | ||||||||||
General and administrative expenses |
14,450 | 4,273 | (5)(6)(7) | 18,723 | ||||||||||
Asset impairment charges and restaurant closing costs |
5 | - | 5 | |||||||||||
Pre-opening expense |
681 | - | 681 | |||||||||||
|
|
|
|
|
|
|||||||||
Total operating expenses |
190,143 | 3,488 | 193,631 | |||||||||||
|
|
|
|
|
|
|||||||||
Operating income |
12,090 | (3,488) | 8,602 | |||||||||||
Other income (expense): |
||||||||||||||
Interest expense |
(2,908) | 2,241 | (12) | (667) | ||||||||||
Other, net |
104 | - | 104 | |||||||||||
|
|
|
|
|
|
|||||||||
Total other income (expense) |
(2,804) | 2,241 | (563) | |||||||||||
|
|
|
|
|
|
|||||||||
Income from continuing operations before income taxes |
9,286 | (1,247) | 8,039 | |||||||||||
Income tax (expense) benefit |
(328) | (2,727) | (8) | (3,055) | ||||||||||
|
|
|
|
|
|
|||||||||
Income from continuing operations |
8,958 | (3,974) | 4,984 | |||||||||||
|
|
|
|
|
|
|||||||||
Income from continuing operations attributable to non-controlling interests |
- | 523 | (4) | 523 | ||||||||||
|
|
|
|
|
|
|||||||||
Income from continuing operations attributable to J. Alexanders Holdings, Inc. |
$ | - | $ | 4,461 | $ | 4,461 | ||||||||
|
|
|
|
|
|
|||||||||
Earnings per share: |
||||||||||||||
Weighted average of common stock outstanding |
||||||||||||||
Basic |
N/A | 15,000 | ||||||||||||
Diluted |
N/A | 16,499 | ||||||||||||
Income from continuing operations available to common shareholders per share (9) |
||||||||||||||
Basic |
N/A | $ | 0.30 | |||||||||||
Diluted |
N/A | $ | 0.27 |
(1) |
We have historically operated our business through J. Alexanders Holdings, LLC and its subsidiaries. As of March 29, 2015, J. Alexanders Holdings, LLC held all of our assets and liabilities and J. Alexanders Holdings, Inc. did not have assets or liabilities and did not conduct operations. Accordingly, the unaudited pro forma consolidated statements of operations for the year ended December 28, 2014 and the three months ended March 29, |
76
2015 and the unaudited pro forma consolidated balance sheet as of March 29, 2015 present the historical results of J. Alexanders Holdings, LLC as a starting point for the pro forma amounts. |
(2) |
Represents the adjustments to reflect the reorganization transactions wherein common stock was authorized and issued to FNF, Newport, and other holders of Class A Units in exchange for their contribution of membership interests in J. Alexanders Holdings, LLC. As a result of this contribution, we will be the sole managing member of J. Alexanders Holdings, LLC. Accordingly, pursuant to ASC 810, we will consolidate the financial results of J. Alexanders Holdings, LLC into our financial statements and record a non-controlling interest for the Class B membership units in J. Alexanders Holdings, LLC not owned by us. |
(3) |
Represents the recapitalization of J. Alexanders Holdings, Inc. (to result in 15 million shares of common stock outstanding), and the distribution transaction wherein FNF distributed its ownership of J. Alexanders Holdings, Inc. common stock to the holders of FNFV common stock by issuing 0.16391 shares of J. Alexanders Holdings, Inc. common stock for every one share of FNFV stock held on the record date for the distribution. |
(4) |
Represents the allocation of shareholders equity between non-controlling interests and equity allocable to J. Alexanders Holdings, Inc. On the statements of operations for the three months ended March 29, 2015 and the year ended December 28, 2014, this represents the allocation of the non-controlling interests in the income of J. Alexanders Holdings, LLC relating to the membership units not owned by us. |
(5) |
Represents the estimated impact of the Class B Units issued in connection with the reorganization and distribution pursuant to the Management Consulting Agreement on general and administrative expenses. |
(6) |
Represents the estimated impact of the annual base fee of 3% of annual Adjusted EBITDA payable to the Management Consultant pursuant to the Management Consulting Agreement. |
(7) |
Represents the estimated additional general and administrative expenses related to our ongoing public company status, which include additional personnel, increased professional fees, increased insurance expenses and outside director compensation. We currently anticipate these costs to range between $750 and $1,000 annually, but actual costs may be materially different. We have included the midpoint of the anticipated range as a pro forma adjustment of $875 on an annual basis. |
(8) |
J. Alexanders Holdings, Inc. will be subject to applicable federal and certain state and local income taxes with respect to its share of allocable taxable income of J. Alexanders Holdings, LLC, which will result in higher income taxes and an increase in income taxes paid. As a result, this reflects an adjustment to corporate income taxes to reflect a blended statutory tax rate of 38%, which includes a provision for U.S. federal income taxes. |
(9) |
Pro forma basic income from continuing operations per share was computed by dividing the pro forma continuing income from operations attributable to our common shareholders by the 15 million shares of common stock outstanding after completion of the distribution. Pro forma diluted income from continuing operations per share was computed by dividing the pro forma continuing income from operations attributable to our common shareholders by the shares of common stock outstanding after completion of the distribution and the |
77
effect of Class B Units both currently outstanding and those that will be issued in connection with the distribution. This adjustment assumes all Class B Units have met their respective hurdle rates. |
(10) |
Reflects the payment of the special recognition bonus in connection with the distribution. See Executive CompensationNarrative Disclosure to Summary Compensation TableSpecial Recognition Bonus. |
(11) |
Reflects the adjustment to the pro forma consolidated statements of operations to reflect the exclusion of transaction and integration costs that would have been incurred prior to the periods presented had the reorganization and distribution transactions occurred at the beginning of 2014. Further, we have adjusted the pro forma consolidated balance sheet presented as of March 29, 2015 to reflect the write-off of deferred offering costs of $1,675. |
(12) |
Reflects the refinancing of the FNF Note which occurred on May 20, 2015 with Pinnacle Bank under the Second Amended and Restated Loan Agreement. |
78
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We have no material operations to date and, therefore, the information below is presented for J. Alexanders Holdings, LLC, which, upon completion of the reorganization transactions and the distribution, will be our consolidated subsidiary and will directly or indirectly hold all of our consolidated operations. The following selected historical consolidated financial data of J. Alexanders Holdings, LLC should be read in conjunction with, and is qualified by reference to, Managements Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included elsewhere in this information statement. The statements of operations for the periods of January 2, 2012 to September 30, 2013 and October 1, 2012 to December 30, 2012 and for fiscal years 2013 and 2014 are derived from, and qualified by reference to, the audited consolidated financial statements of J. Alexanders Holdings, LLC included elsewhere in this information statement and should be read in conjunction with those financial statements and notes thereto. Results for the three months ended March 29, 2015 and March 30, 2014 are not necessarily indicative of results that may be expected for the entire year.
The unaudited pro forma financial data included as Supplemental Pro Forma MD&A Information in the table below for the fiscal year ended December 30, 2012 represents the combination of the Successor 2012 period and the Predecessor 2012 period and the adjustments reflecting the JAC acquisition as if it had occurred on January 1, 2012. The pro forma adjustments are based upon available information and certain assumptions that are factually supportable and that we believe are reasonable. The unaudited pro forma consolidated financial data included as Supplemental Pro Forma MD&A Information does not reflect any of the synergies or cost reductions that may have resulted from the JAC acquisition and does not include any restructuring costs or other one-time charges that may have been incurred. The Supplemental Pro Forma MD&A Information results are for informational purposes only and do not reflect the actual results that we would have achieved had the JAC acquisition been completed as of January 1, 2012 and are not indicative of our future results of operations.
Financial information for all periods presented has been adjusted to reflect the impact of discontinued operations for comparative purposes.
Our combined financial information may not be indicative of our future performance and does not necessarily reflect what our financial condition and results of operations would have been had we operated as a separate, stand-alone entity during the periods presented, including many changes that will occur in the operations and capitalization of our company as a result of our separation from FNF.
79
Successor | Successor |
Supplemental
Pro Forma MD&A Information |
Successor | Predecessor | Successor | |||||||||||||||||||||||
Dollars in thousands |
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
October 1,
2012 to December 30, 2012(1) |
|
|
January 2,
2012 to September 30, 2012(1) |
|
Three Months Ended | ||||||||||||
|
March 29,
2015(1) |
|
|
March 30,
2014(1) |
|
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||||||||||
Net sales |
$202,233 | $188,223 | $156,896 | $40,341 | $116,555 | $56,184 | $52,356 | |||||||||||||||||||||
Cost of sales |
64,591 | 61,432 | 49,741 | 12,883 | 36,858 | 17,447 | 16,374 | |||||||||||||||||||||
Restaurant labor and related costs |
61,539 | 59,032 | 50,835 | 12,785 | 38,050 | 16,415 | 15,425 | |||||||||||||||||||||
Depreciation and amortization of restaurant property and equipment |
7,652 | 7,228 | 5,837 | 1,425 | 4,117 | 1,994 | 1,882 | |||||||||||||||||||||
Other operating expenses |
40,440 | 39,016 | 31,274 | 7,849 | 23,175 | 10,910 | 10,473 | |||||||||||||||||||||
General and administrative expense |
14,450 | 11,981 | 10,439 | 2,330 | 8,109 | 3,977 | 3,286 | |||||||||||||||||||||
Pre-opening expense |
681 | - | - | - | - | 2 | - | |||||||||||||||||||||
Transaction and integration expenses |
785 | (217) | - | 183 | 4,537 | 62 | 1 | |||||||||||||||||||||
Asset impairment charges and restaurant closing costs |
5 | 2,094 | - | - | - | 1 | 4 | |||||||||||||||||||||
Total operating expenses |
190,143 | 180,566 | 148,126 | 37,455 | 114,846 | 50,808 | 47,445 | |||||||||||||||||||||
Operating income |
12,090 | 7,657 | 8,770 | 2,886 | 1,709 | 5,376 | 4,911 | |||||||||||||||||||||
Interest expense |
2,908 | 2,888 | 957 | 187 | 1,174 | 443 | 759 | |||||||||||||||||||||
Other, net |
104 | 3,055 | 94 | 26 | (161) | 28 | 23 | |||||||||||||||||||||
Income from continuing operations before income taxes |
9,286 | 7,824 | 7,907 | 2,725 | 374 | 4,961 | 4,175 | |||||||||||||||||||||
Income tax (expense) benefit |
(328) | (138) | (226) | (1) | 79 | (82) | (29) | |||||||||||||||||||||
Loss from discontinued operations, net |
(443) | (4,785) | (1,918) | (506) | (1,412) | (106) | (123) | |||||||||||||||||||||
Net income (loss) |
$8,515 | $2,901 | $5,763 | $2,218 | $(959 | ) | $4,773 | $4,023 | ||||||||||||||||||||
Balance Sheet Data
Cash and cash equivalents |
$13,301 | $18,069 | - | $11,127 | $6,853 | $11,955 | $19,278 | |||||||||||||||||||||
Working capital (deficit)(2) |
(4,102) | 1,001 | - | (640) | (1,416) | 393 | 6,528 | |||||||||||||||||||||
Total assets |
150,908 | 151,101 | - | 132,749 | 83,872 | 150,945 | 151,446 | |||||||||||||||||||||
Total debt |
22,921 | 34,640 | - | 20,654 | 17,648 | 22,500 | 34,211 | |||||||||||||||||||||
Total membership equity |
96,889 | 88,455 | - | 91,394 | 42,508 | 101,791 | 92,478 |
(1) |
We utilize a 52- or 53-week accounting period which ends on the Sunday closest to December 31, and each quarter typically consists of 13 weeks. The period January 2, 2012 to September 30, 2012, included 39 weeks of operations, and the period October 1, 2012 to December 30, 2012, included 13 weeks of operations. Fiscal years 2014 and 2013 each included 52 weeks of operations. Each of the three-month periods ended March 29, 2015 and March 30, 2014 included 13 weeks of operations. |
(2) |
Defined as total current assets minus total current liabilities. |
80
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our consolidated financial condition and results of operations for the 13 weeks ended March 29, 2015 and March 30, 2014 and for the fiscal years ended December 28, 2014 and December 29, 2013, and the three months ended December 30, 2012 and the nine months ended September 30, 2012 should be read in conjunction with Selected Historical Consolidated Financial Data and the consolidated financial statements and related notes to those statements included elsewhere in this information statement. Some of the information contained in this discussion and analysis or set forth elsewhere in this information statement, including information with respect to our plans and strategies for our business, includes forward-looking statements that involve risks and uncertainties. You should review the section entitled Risk Factors for a discussion of important factors that could cause actual results to differ materially from the results described in, or implied by, the forward-looking statements contained in this information statement.
Overview
We own and operate three complementary upscale dining restaurant concepts: J. Alexanders, Redlands Grill and Stoney River Steakhouse and Grill (Stoney River). For more than 20 years, J. Alexanders guests have enjoyed a contemporary American menu, polished service and an attractive ambiance. In February 2013, our team brought our quality and professionalism to the steakhouse category with the addition of the Stoney River concept. Stoney River provides white tablecloth service and food quality in a casual atmosphere at a competitive price point. Our newest concept, Redlands Grill, offers customers a different version of our contemporary American menu and a distinct architectural design and feel.
Our business plan has evolved over time to include a collection of restaurant concepts dedicated to providing guests with what we believe to be the highest quality food, high levels of professional service and a comfortable ambiance. By offering multiple restaurant concepts and utilizing unique non-standardized architecture and specialized menus, we believe we are positioned to continue to scale and grow our overall restaurant business in an efficient manner in urban and affluent suburban areas. We want each of our restaurants to be perceived by our guests as a locally managed, stand-alone dining experience. This differentiation permits us to successfully operate each of our concepts in the same geographic market. If this strategy continues to prove successful, we may expand beyond our current three concept model in the future.
While each concept operates under a unique trade name, each of our restaurants is identified as a J. Alexanders Holdings restaurant. As of March 29, 2015, we operated a total of 41 locations across 14 states. We currently plan to transition between 12 and 15 of our J. Alexanders restaurants to Redlands Grill restaurants. Other restaurant locations may be added or converted in the future as we determine how best to position our multiple concepts in a given geographic market.
We believe our concepts deliver on our guests desire for freshly-prepared, high quality food and high quality service in a restaurant that feels unchained with architecture and design that varies from location to location. As a result, we have delivered strong growth in same store sales, average weekly sales, net sales and Adjusted EBITDA. Through our combination with Stoney River, we have grown from 33 restaurants across 13 states in 2008 to 41 restaurants across 14 states as of March 29, 2015. Our growth in same store sales since 2008 has allowed us to invest significant amounts of capital to drive growth through the continuous improvement of existing locations, the development of plans to open new restaurants, and the hiring of personnel to support our growth plans.
81
We plan to execute the following strategies to continue to enhance the awareness of our concepts, grow our revenue and improve our profitability by:
|
Pursuing new restaurant development; |
|
Expanding beyond our current three restaurant concepts; |
|
Increasing our same store sales through providing high quality food and service; and |
|
Improving our margins and leverage infrastructure. |
We resumed our new restaurant development program in 2013 and believe there are opportunities to open four to five new restaurants annually starting in 2016. We are actively pursuing development opportunities within all of our concepts and, as discussed elsewhere in this information statement, we are currently evaluating approximately 30 locations in approximately 20 separate markets in order to meet our stated growth objectives. The next new restaurant opening will be a Stoney River restaurant, which is scheduled to open during the fourth quarter of 2015.
Recent Transactions
The following events had an impact on the presentation of our results of operations over the past two years:
|
In September 2012, FNF acquired JAC. JAC was subsequently converted from a corporation to a limited liability company, J. Alexanders, LLC, on October 30, 2012. The acquisition was treated as an acquisition for accounting purposes with FNF as the acquirer and JAC as the acquiree. In February 2013, the operations of Stoney River were contributed to J. Alexanders by FNH. Additionally, in February 2013, J. Alexanders Holdings, LLC assumed the $20,000,000 FNF Note, which was accounted for as a distribution of capital. The note accrued interest at 12.5%, and the interest and principal were payable in full on January 31, 2016. During the years ended December 28, 2014 and December 29, 2013, $2,479,000 and $2,139,000 of interest expense payable to FNF was recorded related to this note. In May 2015, this note was repaid in full. |
|
During 2013, we closed three underperforming J. Alexanders restaurants: |
¡ |
Chicago, Illinoisclosed February 2013 |
¡ |
Orlando, Floridaclosed April 2013 |
¡ |
Scottsdale, Arizonaclosed April 2013 |
For financial reporting purposes, the Orlando and Scottsdale locations were deemed to represent discontinued operations while results related to the Chicago location are reflected as a component of continuing operations.
Performance Indicators
We use the following key metrics in evaluating our performance:
Same Store Sales . We include a restaurant in the same store restaurant group starting in the first full accounting period following the eighteenth month of operations. Our same store restaurant
82
base consisted of 31 restaurants at December 30, 2012, and 40 restaurants at each of December 29, 2013, December 28, 2014 and March 29, 2015. Changes in same store restaurant sales reflect changes in sales for the same store group of restaurants over a specified period of time. This measure highlights the performance of existing restaurants, as the impact of new restaurant openings is excluded.
Measuring our same store restaurant sales allows us to evaluate the performance of our existing restaurant base. Various factors impact same store sales including:
|
consumer recognition of our concepts and our ability to respond to changing consumer preferences; |
|
overall economic trends, particularly those related to consumer spending; |
|
our ability to operate restaurants effectively and efficiently meet guest expectations; |
|
pricing; |
|
guest customer traffic; |
|
spending per guest and average check amounts; |
|
local competition; |
|
trade area dynamics; and |
|
introduction of new menu items. |
J. ALEXANDERS AVERAGE WEEKLY SAME STORE SALES | ||||||||||||||||
(Dollars Rounded to the Nearest $100) |
||||||||||||||||
Average Weekly Same Store Sales | ||||||||||||||||
Q1 | Q2 | Q3 | Q4 | |||||||||||||
2009 |
$ | 91,900 | $ | 83,400 | $ | 77,900 | $ | 86,700 | ||||||||
2010 |
92,000 | 87,200 | 84,800 | 92,900 | ||||||||||||
2011 |
97,300 | 92,600 | 88,900 | 97,700 | ||||||||||||
2012 |
101,600 | 96,200 | 91,400 | 99,700 | ||||||||||||
2013 |
106,700 | 101,100 | 95,800 | 105,000 | ||||||||||||
2014 |
111,800 | 105,600 | 100,500 | 110,100 | ||||||||||||
2015 |
118,600 | |||||||||||||||
Average Weekly Same Store Sales Growth Rate | ||||||||||||||||
Q1 | Q2 | Q3 | Q4 | |||||||||||||
2010 |
0.1% | 4.6% | 8.9% | 7.2% | ||||||||||||
2011 |
5.8% | 6.2% | 4.8% | 5.2% | ||||||||||||
2012 |
4.4% | 3.9% | 2.8% | 2.0% | ||||||||||||
2013 |
5.0% | 5.1% | 4.8% | 5.3% | ||||||||||||
2014 |
4.8% | 4.5% | 4.9% | 4.9% | ||||||||||||
2015 |
6.1% |
83
Average Weekly Sales . Average weekly sales per restaurant is computed by dividing total restaurant sales for the period by the total number of days all restaurants were open for the period to obtain a daily sales average. The daily sales average is then multiplied by seven to arrive at average weekly sales per restaurant. Days on which restaurants are closed for business for any reason other than scheduled closures on Thanksgiving and Christmas are excluded from this calculation. Revenue associated with reduction in liabilities for gift cards which are considered to be only remotely likely to be redeemed (based on historical redemption rates) is not included in the calculation of average weekly sales per restaurant.
Average Weekly Same Store Sales . Average weekly same store sales per restaurant is computed by dividing total restaurant same store sales for the period by the total number of days all same store restaurants were open for the period to obtain a daily sales average. The daily same store sales average is then multiplied by seven to arrive at average weekly same store sales per restaurant. Days on which restaurants are closed for business for any reason other than scheduled closures on Thanksgiving and Christmas are excluded from this calculation. Sales and sales days used in this calculation include only those for restaurants in operation at the end of the period which have been open for more than eighteen months. Revenue associated with reduction in liabilities for gift cards which are considered to be only remotely likely to be redeemed (based on historical redemption rates) is not included in the calculation of average weekly same store sales per restaurant.
Average Check . Average check is calculated by dividing total restaurant sales by guest counts for a given time period. Total restaurant sales includes food, alcohol and beverage sales. Average check is influenced by menu prices and menu mix. Management uses this indicator to analyze trends in customers preferences, the effectiveness of menu changes and price increases and per guest expenditures.
Average Unit Volume . Average unit volume consists of the average sales of our restaurants over a certain period of time. This measure is calculated by multiplying Average Weekly Sales by the relevant number of weeks for the period presented. This indicator assists management in measuring changes in customer traffic, pricing and development of our concepts.
Cost of Sales . Cost of sales, as defined below, is an important metric to management because it is the only truly variable component of cost relative to the sales volume while other components of cost can vary significantly due to the ability to leverage fixed costs at higher sales volumes.
Guest Counts. Guest counts are measured by the number of entrees ordered at our restaurants over a given time period.
Our business is subject to seasonal fluctuations. Historically, the percentage of our annual revenues earned during the first and fourth quarters has been higher due, in part, to increased gift card redemptions and increased private dining during the year-end holiday season. In addition, we operate on a 52- or 53-week fiscal year that ends on the Sunday closest to December 31. Each quarterly period has 13 weeks, except for a 53-week year when the fourth quarter has 14 weeks. As many of our operating expenses have a fixed component, our operating income and operating income margins have historically varied from quarter to quarter. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter, or for the full fiscal year.
84
Key Financial Definitions
Net Sales . Net sales consist primarily of food and beverage sales at our restaurants, net of any discounts, such as management meals and employee meals, associated with each sale. Net sales are directly influenced by the number of operating weeks in the relevant period, the number of restaurants we operate and same store sales growth.
Cost of Sales . Cost of sales is comprised primarily of food and beverage expenses and is presented net of earned vendor rebates. Food and beverage expenses are generally influenced by the cost of food and beverage items, distribution costs and menu mix. The components of cost of sales are variable in nature, increase with revenues, are subject to increases or decreases based on fluctuations in commodity costs, including beef prices, and depend in part on the controls we have in place to manage cost of sales at our restaurants.
Restaurant Labor and Related Costs . Restaurant labor and related costs includes restaurant management salaries, hourly staff payroll and other payroll-related expenses, including management bonus expenses, vacation pay, payroll taxes, fringe benefits and health insurance expenses.
Depreciation and Amortization . Depreciation and amortization principally includes depreciation on restaurant fixed assets, including equipment and leasehold improvements, and amortization of certain intangible assets for restaurants. We depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life. As we accelerate our restaurant openings, depreciation and amortization is expected to increase as a result of our increased capital expenditures.
Other Operating Expenses . Other operating expenses includes repairs and maintenance, credit card fees, rent, property taxes, insurance, utilities, operating supplies and other restaurant-level related operating expenses.
Pre-opening Expenses . Pre-opening expenses are costs incurred prior to opening a restaurant, and primarily consist of manager salaries, relocation costs, recruiting expenses, employee payroll and related training costs for new employees, including rehearsal of service activities, as well as lease costs incurred prior to opening. In addition, pre-opening expenses include marketing costs incurred prior to opening as well as meal expenses for entertaining local dignitaries, families and friends. We currently target pre-opening costs per restaurant at $625,000.
General and Administrative Expenses . General and administrative expenses are comprised of costs related to certain corporate and administrative functions for both concepts that support development and restaurant operations and provide an infrastructure to support future company growth. These expenses reflect management, supervisory and staff salaries and employee benefits, travel, information systems, training, corporate rent, depreciation of corporate assets, professional and consulting fees, technology and market research. These expenses are expected to increase as a result of costs associated with being a public company as well as costs related to our anticipated growth. As we are able to leverage these investments made in our people and systems, we expect these expenses to decrease as a percentage of net sales over time.
Interest Expense . Interest expense consists primarily of interest on our outstanding indebtedness. Our debt issuance costs are recorded at cost and are amortized over the lives of the related debt under the effective interest method.
85
Income Tax (Expense) Benefit . This represents expense related to the taxable income at the federal, state and local level. The predecessor entity, JAC, was organized as a C-corporation, and therefore filed federal and state income tax returns, as required in various jurisdictions. JAC was converted to J. Alexanders, LLC on October 30, 2012, and thereafter the filing requirements and related tax liability at both the federal and state level were passed through to the ultimate parent corporation, FNF. Concurrent with the combination with Stoney River, partnership tax treatment became effective, and the federal and state tax filing requirements for J. Alexanders Holdings, LLC went into effect. Although partnership returns for J. Alexanders Holdings, LLC are filed in most jurisdictions, effectively passing the tax liability to the partners, there are a small number of jurisdictions, Tennessee being one of them, that do not recognize limited liability companies structured as partnerships as disregarded entities for state income tax purposes. In those jurisdictions, J. Alexanders Holdings, LLC is liable for any applicable state income tax. J. Alexanders Holdings, LLC is also liable for franchise taxes in the various jurisdictions in which it operates, which are recorded as a component of general and administrative expense.
Discontinued Operations . On April 3, 2013 we closed our Orlando, FL location and on April 15, 2013 we closed our Scottsdale, AZ location. We determined that these closures met the criteria for classification as discontinued operations. See Note 2(c) Summary of Significant Accounting PoliciesDiscontinued Operations in the notes to our consolidated financial statements for more information.
Basis of Presentation
The Consolidated Statements of Operations and Cash Flows are presented for four periods: January 2, 2012 through September 30, 2012 (the Predecessor Period) (which relates to the period immediately preceding the JAC acquisition), October 1, 2012 through December 30, 2012, the year ended December 29, 2013, and the year ended December 28, 2014 (the Successor Periods). The supplemental pro forma results for the year ended December 30, 2012 provided herein represent the addition of the Predecessor and Successor periods as well as pro forma adjustments to reflect the JAC acquisition as if it had occurred prior to the beginning of the period presented (these combined and adjusted results are referred to herein as Supplemental Pro Forma MD&A Information or the 2012 period, as adjusted). The Consolidated Financial Statements for the Successor Periods reflect the JAC acquisition under the purchase method of accounting. The results of the Successor Periods are not comparable to the results of the Predecessor Period due to the difference in the basis of presentation of purchase accounting as compared to historical cost. These adjustments are based upon available information and certain assumptions that are factually supportable and that we believe are reasonable. The results reflected in the Supplemental Pro Forma MD&A Information are for informational purposes only and do not reflect the actual results we would have achieved had the JAC acquisition been completed as of the beginning of the year and are not indicative of our future results of operations. Results of Stoney River are included only for periods after February 24, 2013.
The two locations that began the transition from a J. Alexanders restaurant to a Redlands Grill restaurant during March 2015 have been included in the J. Alexanders results of operations, average weekly same store sales calculations and all applicable other disclosures due to the timing of the applicable transitions.
86
Results of Operations
The following tables set forth, for the periods indicated, our consolidated results, including our results expressed as a percentage of net sales, and other selected operating data:
($ in thousands) | 13 Weeks Ended | Percent Change | ||||||||||
|
|
|||||||||||
March 29, 2015 | March 30, 2014 | 2015 vs. 2014 | ||||||||||
|
|
|||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||
Net sales |
$ | 56,184 | $ | 52,356 | 7.3% | |||||||
Costs and expenses: |
||||||||||||
Cost of sales |
17,447 | 16,374 | 6.6% | |||||||||
Restaurant labor and related costs |
16,415 | 15,425 | 6.4% | |||||||||
Depreciation and amortization of restaurant property and equipment |
1,994 | 1,882 | 6.0% | |||||||||
Other operating expenses |
10,910 | 10,473 | 4.2% | |||||||||
|
|
|||||||||||
Total restaurant operating expenses |
46,766 | 44,154 | 5.9% | |||||||||
Transaction and integration expenses |
62 | 1 | NM | |||||||||
General and administrative expenses |
3,977 | 3,286 | 21.0% | |||||||||
Asset impairment charges and restaurant closing costs |
1 | 4 | NM | |||||||||
Pre-opening expense |
2 | - | NM | |||||||||
|
|
|||||||||||
Total operating expenses |
50,808 | 47,445 | 7.1% | |||||||||
|
|
|||||||||||
Operating income |
5,376 | 4,911 | 9.5% | |||||||||
Other income (expense): |
||||||||||||
Interest expense |
(443) | (759) | -41.6% | |||||||||
Other, net |
28 | 23 | 21.7% | |||||||||
|
|
|||||||||||
Total other income (expense) |
(415) | (736) | -43.6% | |||||||||
|
|
|||||||||||
Income from continuing operations before income taxes |
4,961 | 4,175 | 18.8% | |||||||||
Income tax (expense) benefit |
(82) | (29) | 182.8% | |||||||||
Loss from discontinued operations, net |
(106) | (123) | -13.8% | |||||||||
|
|
|||||||||||
Net income (loss) |
$ | 4,773 | $ | 4,023 | 18.6% | |||||||
|
|
87
As a Percentage of Net Sales: |
13 Weeks Ended |
|||||||
March 29, 2015 | March 30, 2014 | |||||||
|
|
|||||||
Costs and expenses: |
||||||||
Cost of sales |
31.1% | 31.3% | ||||||
Restaurant labor and related costs |
29.2% | 29.5% | ||||||
Depreciation and amortization of restaurant property and equipment |
3.5% | 3.6% | ||||||
Other operating expenses |
19.4% | 20.0% | ||||||
|
|
|||||||
Total restaurant operating expenses |
83.2% | 84.3% | ||||||
Transaction and integration expenses |
0.1% | * | ||||||
General and administrative expenses |
7.1% | 6.3% | ||||||
Asset impairment charges and restaurant closing costs |
* | * | ||||||
Pre-opening expense |
* | * | ||||||
|
|
|||||||
Total operating expenses |
90.4% | 90.6% | ||||||
|
|
|||||||
Operating income |
9.6% | 9.4% | ||||||
|
|
|||||||
Other income (expense): |
||||||||
Interest expense |
-0.8% | -1.4% | ||||||
Other, net |
* | * | ||||||
|
|
|||||||
Total other expense |
-0.7% | -1.4% | ||||||
|
|
|||||||
Income from continuing operations before income taxes |
8.8% | 8.0% | ||||||
Income tax (expense) benefit |
-0.1% | -0.1% | ||||||
Loss from discontinued operations, net |
-0.2% | -0.2% | ||||||
|
|
|||||||
Net income (loss) |
8.5% | 7.7% | ||||||
|
|
* Less than 0.1%
NM means not meaningful
Thirteen Weeks Ended March 29, 2015 compared to Thirteen Weeks Ended March 30, 2014
Net Sales
Net sales increased by $3,828,000, or 7.3%, in the first three months of 2015 compared to the corresponding period of 2014, due to a $496,000 increase in same store revenue at Stoney River restaurants, a $2,044,000 increase in same store revenue at J. Alexanders restaurants, and the impact of a new J. Alexanders restaurant which opened in Columbus, Ohio during November 2014. Due to atypically severe winter weather conditions during the first quarter of both periods, our concepts lost 32 days of revenue due to weather-related restaurant closures during the first quarter of 2015, compared to 36 revenue days during the first quarter of 2014. In addition, one of the J. Alexanders restaurants was closed for 35 days during the first quarter of 2015 while undergoing a major remodel.
Average weekly same store sales on a consolidated basis totaled $107,600 during the first three months of 2015, a 5.9% increase over the $101,600 recorded during the first three months of 2014. Average weekly same store sales at J. Alexanders restaurants for the first three months of 2015 increased by 6.1% to $118,600, compared to $111,800, in the corresponding period of 2014. At Stoney River, average weekly sales totaled $74,600, for the first three months of 2015, an increase of 5.5% over the $70,700 in average weekly sales for the first three months of 2014.
88
The average check per guest at J. Alexanders in the first three months of 2015 was $30.95, representing an increase of approximately 4.1% from $29.74 in the corresponding period in 2014. Average menu prices increased by approximately 3.5% in the first three months of 2015 compared to the corresponding period in 2014. These price increase estimates reflect nominal amounts of menu price changes, without regard to any change in product mix because of price increases, and may not reflect amounts actually paid by customers. Weekly average guest counts increased on a same store basis by approximately 1.9% in the first three months of 2015 compared to the corresponding period of 2014.
At Stoney River, the average check per guest in the first three months of 2015 was $45.79, representing an increase of approximately 3.2% from $44.39 during the first three months of 2014. Weekly average guest counts increased on a same store basis by approximately 2.3% in the first three months of 2015 compared to the first three months of 2014.
Restaurant Costs and Expenses
Total restaurant operating expenses were 83.2% of net sales in the first three months of 2015, down from 84.3% in the corresponding period of 2014. The decrease in the 2015 period was due primarily to sales in the same store base of restaurants combined with favorable trends in cost of sales at Stoney River. Restaurant operating profit margins were 16.8% in the first three months of 2015 compared to 15.7% in the corresponding period of 2014.
Cost of sales decreased to 31.1% of net sales in the first three months of 2015 from 31.3% of net sales in the corresponding period of 2014 due primarily to improvements realized within the Stoney River restaurants. Cost of sales at Stoney River decreased to 34.3% of net sales during the first three months of 2015 compared to 35.5% for the first three months of 2014 due to continued improvements in kitchen efficiencies, menu mix and sourcing. In addition, the effect of higher sales at J. Alexanders restaurants offset estimated inflation of 5.5% within the J. Alexanders concept during the first quarter of 2015, resulting in cost of sales totaling 30.4% during the first three months of 2015, consistent with the 30.4% realized in the comparable 2014 period.
Beef purchases represent the largest component of consolidated cost of sales and comprise approximately 30% of this expense category. We purchase beef at weekly market prices. Prices paid for beef within the J. Alexanders restaurants were higher in the first three months of 2015 than in the corresponding period of 2014 by approximately 10.6%.
Our beef purchases currently remain subject to variable market conditions and we anticipate that prices for beef over the remainder of 2015 will exceed those paid in previous comparable periods, perhaps substantially. We continually monitor the beef market and if there are significant changes in market conditions or attractive opportunities to contract at fixed prices arise, we will consider entering into a fixed price purchasing agreement.
Restaurant labor and related costs decreased to 29.2% of net sales in the first three months of 2015 from 29.5% in the corresponding period of 2014 due primarily to the effect of higher average weekly same store sales in each concept.
Depreciation and amortization of restaurant property and equipment decreased to 3.5% of net sales for the first three months of 2015 from 3.6% in the corresponding period in 2014, as the favorable effect of higher average weekly same store sales more than offset additional depreciation expense related to capital expenditures within the Stoney River group of restaurants and the impact of the new J. Alexanders restaurant opened in the fourth quarter of 2014.
89
Other operating expenses decreased to 19.4% of net sales in the first three months of 2015 from 20.0% of net sales in the corresponding period of 2014, primarily due to the favorable effect of higher average weekly same store sales and decreases in repair and maintenance expense, utilities and advertising expense associated with Stoney River.
General and Administrative Expenses
Total general and administrative expenses increased by $691,000 in the first three months of 2015 compared to the corresponding period of 2014. As a percentage of net sales, general and administrative expense totaled 7.1% for the first three months of 2015 compared to 6.3% during the corresponding period of 2014. The more significant components of the increase during 2015 include increased incentive compensation accruals, additional payroll taxes, increased rent expenses, increased employee relocation costs, and increased expense associated with legal, accounting, auditing and other professional fees, which more than offset the favorable effect of higher average weekly same store sales per restaurant.
Transaction and Integration Expenses
We incurred non-recurring transaction and integration expenses totaling $62,000 during the three months ended March 29, 2015, compared to $1,000 for the first three months of 2014. Transaction costs typically consist primarily of legal and consulting costs, accounting fees, and, to a lesser extent, other professional fees and miscellaneous costs. Integration costs consist primarily of consulting and legal costs. Deferred offering costs totaled $1,675,000 as of March 29, 2015 and primarily consist of direct, incremental legal and accounting fees relating to the pursuit of an initial public offering. These costs are capitalized within other current assets and would be offset against proceeds upon the consummation of an offering . In the event the offering is terminated, deferred offering costs will be expensed.
Other Income (Expense)
Interest expense decreased by $316,000 in the first three months of 2015 compared to the corresponding period in 2014, primarily as a result of our prepayment of $10,000,000 of the 12.5%, $20,000,000 FNF note payable during December 2014.
Discontinued Operations
During 2013, three underperforming J. Alexanders restaurants were closed and two of these locations were considered to be discontinued operations. Losses from discontinued operations totaling $106,000 and $123,000 for the periods ended March 29, 2015 and March 30, 2014, respectively, consist solely of exit and disposal costs which are primarily related to continued obligations under leases.
90
Year Ended December 28, 2014 Compared to Year Ended December 29, 2013
The following tables set forth, for the periods indicated, our consolidated results, including our results expressed as a percentage of net sales, and other selected operating data:
Year Ended
December 28,
|
Year Ended
December 29,
|
Percent
2014 vs. 2013 |
||||||||||
|
|
|||||||||||
Net sales |
$ | 202,233 | $ | 188,223 | 7.4% | |||||||
Costs and expenses: |
||||||||||||
Cost of sales |
64,591 | 61,432 | 5.1% | |||||||||
Restaurant labor and related costs |
61,539 | 59,032 | 4.2% | |||||||||
Depreciation and amortization of restaurant property and equipment |
7,652 | 7,228 | 5.9% | |||||||||
Other operating expenses |
40,440 | 39,016 | 3.6% | |||||||||
|
|
|||||||||||
Total restaurant operating expenses |
174,222 | 166,708 | 4.5% | |||||||||
Transaction and integration expenses |
785 | (217) | NM | |||||||||
General and administrative expenses |
14,450 | 11,981 | 20.6% | |||||||||
Asset impairment charges and restaurant closing costs |
5 | 2,094 | -99.8% | |||||||||
Pre-opening expense |
681 | - | NM | |||||||||
|
|
|||||||||||
Total operating expenses |
190,143 | 180,566 | 5.3% | |||||||||
|
|
|||||||||||
Operating income |
12,090 | 7,657 | 57.9% | |||||||||
|
|
|||||||||||
Other income (expense): |
||||||||||||
Interest expense |
(2,908) | (2,888) | 0.7% | |||||||||
Gain on extinguishment of debt |
- | 2,938 | NM | |||||||||
Other, net |
104 | 117 | -11.1% | |||||||||
|
|
|||||||||||
Total other income (expense) |
(2,804) | 167 | NM | |||||||||
|
|
|||||||||||
Income from continuing operations before income taxes |
9,286 | 7,824 | 18.7% | |||||||||
Income tax (expense) benefit |
(328) | (138) | 137.7% | |||||||||
Loss from discontinued operations, net |
(443) | (4,785) | -90.7% | |||||||||
|
|
|||||||||||
Net Income (loss) |
$ | 8,515 | $ | 2,901 | 193.5% | |||||||
|
|
91
As a Percentage of Net Sales |
||||||||
Year Ended December 28, 2014 |
Year Ended December 29, 2013 |
|||||||
|
|
|||||||
Costs and expenses |
||||||||
Cost of sales |
31.9% | 32.6% | ||||||
Restaurant labor and related costs |
30.4% | 31.4% | ||||||
Depreciation and amortization of restaurant property and equipment |
3.8% | 3.8% | ||||||
Other operating expenses |
20.0% | 20.7% | ||||||
|
|
|
|
|||||
Total restaurant operating expenses |
86.1% | 88.6% | ||||||
Transaction and integration expenses |
0.4% | -0.1% | ||||||
General and administrative expenses |
7.1% | 6.4% | ||||||
Asset impairment charges and restaurant closing costs |
* | 1.1% | ||||||
Pre-opening expense |
0.3% | * | ||||||
|
|
|
|
|||||
Total operating expenses |
94.0% | 95.9% | ||||||
|
|
|
|
|||||
Operating income |
6.0% | 4.1% | ||||||
Other income (expense): |
||||||||
Interest expense |
-1.4% | -1.5% | ||||||
Gain on extinguishment of debt |
* | 1.6% | ||||||
Other, net |
0.1% | 0.1% | ||||||
|
|
|
|
|||||
Total other income (expense) |
-1.4% | 0.1% | ||||||
|
|
|
|
|||||
Income from continuing operations before income taxes |
4.6% | 4.2% | ||||||
Income tax (expense) benefit |
-0.2% | -0.1% | ||||||
Loss from discontinued operations, net |
-0.2% | -2.5% | ||||||
|
|
|
|
|||||
Net income (loss) |
4.2% | 1.5% | ||||||
|
|
|
|
*Less than 0.1%
NM means not meaningful
Net Sales
Net sales totaled $202,233,000 in 2014 compared to $188,223,000 in 2013, an increase of $14,010,000. This increase is attributed to $7,252,000 of additional revenue related to the 30 J. Alexanders locations open during both 2014 and 2013, an increase of $6,563,000 related to Stoney River, and the impact of the new J. Alexanders restaurant which opened in Columbus, Ohio during November 2014, which more than offset the $409,000 decrease in revenue associated with the closure of the J. Alexanders in Chicago, Illinois during 2013. The increase at Stoney River was attributed partially to a full 52 weeks of operations during 2014 compared to 44 weeks of revenue during 2013.
Average weekly same store sales on a consolidated basis totaled $96,800 in 2014, a 3.2% increase over the $93,800 recorded during 2013. Average weekly same store sales per restaurant for J. Alexanders totaled $107,000 during 2014 compared to $102,200 during 2013. For the Stoney River restaurants, average weekly same store sales totaled $66,200 during 2014 as compared to $64,200 for the 44 weeks subsequent to the transfer by FNH of the Stoney River Assets to us in 2013.
92
With respect to the J. Alexanders operations, the average check per guest in 2014 was $29.69, up approximately 3.7% compared to $28.62 in 2013. Management estimates that average menu prices increased by approximately 3.1% in 2014 compared to 0.9% in 2013. These price increase estimates reflect nominal amounts of menu price changes, without regard to any change in product mix because of price increases, and may not reflect amounts actually paid by customers. Weekly average guest counts increased on a same store basis by approximately 1.0% during 2014.
For the Stoney River concept, the estimated average check per guest during 2014 was $45.31 up approximately 10.2% compared to $41.11 during the 44 weeks of operations included in 2013. Weekly average guest counts decreased on a same store basis by approximately 7.2% in 2014 compared to the 44 weeks of operations included in 2013. This decrease in guest counts is attributable primarily to the fact that since we began operating Stoney River we have reduced, and in some markets eliminated, the coupons and other discounts previously offered to Stoney River guests. Also contributing to this decline was our conversion in the third quarter of 2013 of one Stoney River location that had previously been open for lunch to a dinner-only restaurant.
We recognize revenue from reductions in liabilities for gift cards which, although they do not expire, are considered to be only remotely likely to be redeemed (based on historical redemption rates). These revenues are included in net sales in the amounts of $772,000 for 2014 and $213,000 for 2013. Based on our historical experience, we consider the probability of redemption of a J. Alexanders gift card to be remote when it has been outstanding for 24 months. With respect to outstanding Stoney River gift cards, breakage was historically calculated as a percent of gift cards sold and we continued to apply this historical methodology to the Stoney River population of gift cards outstanding subsequent to the transfer by FNH of the Stoney River Assets to us through the period ended March 30, 2014. During the second quarter of 2014, we recorded a change in estimate related to the Stoney River gift card program which resulted in additional breakage of $373,000 being recognized. Prospectively, we will calculate breakage for Stoney River consistent with the approach utilized for J. Alexanders.
Restaurant Costs and Expenses
Total restaurant operating expenses were 86.1% of net sales in 2014 compared to 88.6% of net sales in 2013. The decrease in 2014 was due to the combination of improved sales in the same store base of restaurants, favorable trends in cost of sales at each concept, and the favorable impact of closing the underperforming J. Alexanders in Chicago, which was partially offset by operating losses incurred relative to the new J. Alexanders which opened in Columbus, Ohio during November 2014. Restaurant Operating Profit Margins were 13.9% in 2014 compared to 11.4% in 2013.
Cost of sales decreased to 31.9% of net sales in 2014 compared to 32.6% of net sales in 2013 primarily due to improvements realized within the Stoney River restaurants. Cost of sales at Stoney River decreased to 35.5% of net sales in 2014 compared to 40.0% of net sales for the 44 weeks of operations included in 2013 due to continued improvements in kitchen efficiencies, menu mix and sourcing. In addition, the effect of higher sales at J. Alexanders restaurants more than offset estimated inflation of 4.8% within the J. Alexanders concept, resulting in cost of sales totaling 31.2% in 2014 compared to 31.3% in 2013.
Beef purchases represent the largest component of consolidated cost of sales and comprise approximately 30% of this expense category. We purchase beef weekly at market prices. Prices paid for beef within the J. Alexanders restaurants were higher in 2014 than in 2013 by approximately 8.3%.
Our beef purchases currently remain subject to variable market conditions and we anticipate that prices for beef in 2015 will exceed those paid in 2014, perhaps substantially. We continually
93
monitor the beef market and if there are significant changes in market conditions or attractive opportunities to contract at fixed prices arise, we will consider entering into a fixed price purchasing agreement.
Restaurant labor and related costs decreased to 30.4% of net sales in 2014 compared to 31.4% of net sales in 2013 due primarily to the effect of higher average weekly same store sales in our concepts.
Depreciation and amortization of restaurant property and equipment totaled 3.8% of net sales for each of 2014 and 2013, as the favorable effects of higher average weekly same store sales was offset by additional depreciation expense related to capital expenditures within the Stoney River restaurants.
Other operating expenses decreased to 20.0% of net sales in 2014 compared to 20.7% of net sales in 2013 primarily due to the favorable effect of higher average weekly same store sales and decreases in both repair and maintenance expense as well as advertising expense associated with Stoney River.
General and Administrative Expenses
General and administrative expenses totaled $14,450,000 in 2014 compared to $11,981,000 in 2013, an increase of $2,469,000. As a percentage of net sales, general and administrative expense totaled 7.1% of net sales in 2014 compared to 6.4% in 2013. The increase during 2014 is attributed primarily to increased incentive compensation accruals, additional staffing of selected new positions, additional management training costs, increased expense associated with accounting and auditing fees, and non-cash expense related to the accounting for certain executive salary continuation agreements which more than offset the favorable effect of higher average weekly same store sales per restaurant.
Transaction and Integration Expenses
During 2013, we incurred certain nonrecurring transaction and integration costs of $189,000 in connection with the acquisition of J. Alexanders and the contribution of the Stoney River Assets to us. This amount was offset by receipt of $406,000 in insurance proceeds under our directors and officers liability policy for costs previously incurred in connection with certain shareholder litigation.
During 2014, we incurred transaction and integration costs of $785,000 as indirect costs related to the contemplated initial public offering of our common stock. Transaction costs consisted primarily of legal and consulting costs, accounting fees and to a lesser extent other professional fees and miscellaneous costs. Integration costs consisted primarily of consulting and legal costs. In addition, we capitalized deferred offering costs of $1,675,000 consisting primarily of direct, incremental legal and accounting fees relating to the pursuit of an initial public offering. Such deferred offering costs would be offset against proceeds upon the consummation of the offering. In the event the offering is terminated, deferred offering costs will be expensed.
Asset Impairment Charges
During 2013, we closed the J. Alexanders restaurant in Chicago. At the time the decision to close the restaurant was made, an analysis was performed for asset impairment, and this restaurant was determined to be an impaired location and the related long-lived assets with a carrying amount of $1,583,000 were written down to their fair value of zero, resulting in a non-cash impairment charge of $1,583,000.
94
In addition to asset impairment charges, we expensed $511,000 of restaurant closing costs in 2013 relative to the Chicago location, which is also presented in the Asset impairment charges and restaurant closing costs line item. Restaurant closing costs consisted largely of accruals of remaining rent payments, net of estimated sublease, as well as brokerage fees, lease break payments, moving costs and travel.
We did not incur any impairment charges in 2014.
Pre-Opening Expenses
Pre-opening expense consists of expenses incurred prior to opening a new restaurant and include principally manager salaries and relocation costs, payroll and related costs for training new employees, travel and lodging expenses for employees who assist with training new employees, and cost of food and other expenses associated with practice of food preparation and service activities. Pre-opening expense also includes rent expense for leased properties for the period of time between taking control of the property and the opening of the restaurant. In 2014, we incurred $681,000 of pre-opening expense related to the opening of a new J. Alexanders in Columbus, Ohio in the fourth quarter of 2014.
Other Income (Expense)
Interest expense totaled $2,908,000 in 2014 compared to $2,888,000 in 2013. Interest expense of $2,479,000 and $2,139,000 in 2014 and 2013, respectively, was recorded relative to the FNF Note.
In 2013, we obtained a new credit facility and our previous mortgage loan was paid off. A gain on the debt extinguishment of $2,938,000 was recorded as the reacquisition price was less than the carrying amount of the debt, due to the fact that the carrying value included a fair-value adjustment made in connection with the purchase accounting for the JAC acquisition.
Income Taxes
We reported income tax expense of $328,000 in 2014 compared to $138,000 in 2013.
Discontinued Operations
During 2013, we closed the J. Alexanders restaurants in Orlando and Scottsdale. The Orlando restaurant had been previously classified as an impaired asset, with substantially all of its assets written down to their fair value of zero. At the time the decision to close these restaurants was made, an analysis was performed for asset impairment, and both restaurants were determined to be impaired locations and the related long-lived assets with a carrying amount of $2,657,000 were written down to their fair value of zero, resulting in a non-cash impairment charge of $2,657,000.
In addition to asset impairment charges, we expensed $1,827,000 of restaurant closing costs in 2013 relative to these two locations, which is also presented in the Loss from discontinued operations, net line item. Restaurant closing costs consisted largely of accruals of remaining rent payments, net of estimated subleases as well as brokerage fees, lease break payments, moving costs and travel.
During 2014, restaurant closing costs totaled $443,000 and were included in the Loss from discontinued operations, net line item and consisted solely of exit and disposal costs related to the Orlando and Scottsdale closings.
95
Year Ended December 29, 2013 Compared to Supplemental Pro Forma MD&A Information for the Year Ended December 30, 2012
This supplemental discussion of 2012 results reflected in the Supplemental Pro Forma MD&A Information as compared to 2013 results is included to provide a more meaningful discussion of trends as compared to the discussion of historical successor and predecessor periods included later in this section. The following tables set forth, for the periods indicated, our consolidated results, with percentages expressed as a percentage of net sales:
Successor |
Supplemental
Pro Forma MD&A Information (1) |
|||||||
($ in thousands) |
Year Ended
December 29, 2013 |
Year Ended
December 30 2012, as adjusted |
||||||
(unaudited) | ||||||||
Net sales |
$ | 188,223 | $ | 156,896 | ||||
Costs and expenses: |
||||||||
Cost of sales |
61,432 | 49,741 | ||||||
Restaurant labor and related costs |
59,032 | 50,835 | ||||||
Depreciation and amortization of restaurant property and equipment |
7,228 | 5,837 | ||||||
Other operating expenses |
39,016 | 31,274 | ||||||
|
|
|||||||
Total restaurant operating expenses |
166,708 | 137,687 | ||||||
Transaction and integration expenses |
(217) | - | ||||||
General and administrative expenses |
11,981 | 10,439 | ||||||
Asset impairment charges and restaurant closing costs |
2,094 | - | ||||||
|
|
|||||||
|
|
|
|
|
|
|||
Total operating expenses |
180,566 | 148,126 | ||||||
|
|
|||||||
Operating income |
7,657 | 8,770 | ||||||
Other income (expense): |
||||||||
Interest expense |
(2,888) | (957) | ||||||
Gain on extinguishment of debt |
2,938 | - | ||||||
Other, net |
117 | 94 | ||||||
|
|
|||||||
Total other income (expense) |
167 | (863) | ||||||
|
|
|||||||
Income from continuing operations before income taxes |
7,824 | 7,907 | ||||||
Income tax (expense) benefit |
(138) | (226) | ||||||
Loss from discontinued operations, net |
(4,785) | (1,918) | ||||||
|
|
|||||||
Net income |
$ | 2,901 | $ | 5,763 | ||||
|
|
96
As a Percentage of Net Sales:
Successor |
Supplemental Pro Forma
MD&A
|
|||
Year Ended
December 29, 2013 |
Year Ended
December 30, 2012, as adjusted |
|||
(unaudited) | ||||
Costs and expenses: |
||||
Cost of sales |
32.6% | 31.7% | ||
Restaurant labor and related costs |
31.4% | 32.4% | ||
Depreciation and amortization of restaurant property and equipment |
3.8% | 3.7% | ||
Other operating expenses |
20.7% | 19.9% | ||
|
||||
Total restaurant operating expenses |
88.6% | 87.8% | ||
Transaction and integration expenses |
-0.1% | * | ||
General and administrative expenses |
6.4% | 6.7% | ||
Asset impairment charges and restaurant closing costs |
1.1% | * | ||
|
||||
Total operating expenses |
95.9% | 94.4% | ||
|
||||
Operating income |
4.1% | 5.6% | ||
Other income (expense): |
||||
Interest expense |
-1.5% | -0.6% | ||
Gain on extinguishment of debt |
1.6% | * | ||
Other, net |
0.1% | 0.1% | ||
Total other income (expense) |
0.1% | -0.6% | ||
|
||||
Income from continuing operations before income taxes |
4.2% | 5.0% | ||
Income tax (expense) benefit |
-0.1% | -0.1% | ||
Loss from discontinued operations, net |
-2.5% | -1.2% | ||
|
||||
Net income |
1.5% | 3.7% | ||
|
*Less |
than 0.1% |
(1) |
Supplemental Pro Forma MD&A Information for the year ended December 30, 2012 gives effect to the JAC acquisition as if it had occurred on January 1, 2012. The adjustments reflected in the statement of operations presented as Supplemental Pro Forma MD&A Information are comprised of the following: |
|
the elimination of $4,720,000 of transaction and integration costs related to the JAC acquisition; |
|
the addition of $295,000 in restaurant depreciation expense to reflect the impact of a full year of depreciation of the increased fair value basis of property, plant and equipment; |
|
the addition of $250,000 of non-cash rent expense to reflect the restart of straight-line rent expense at the beginning of the year and a full year of amortization of favorable lease assets and unfavorable lease liabilities; |
97
|
a reduction of interest expense of $404,000 to reflect a full year of amortization of the fair value debt adjustment and the elimination of deferred loan cost amortization as of the beginning of the year; |
|
the elimination of $229,000 of stock option expense that would not have been incurred had the transaction taken place prior to the beginning of the year; and |
|
the addition of $304,000 of income tax expense to reflect the provision for income taxes on the adjusted pre-tax income. |
Net Sales
Net sales increased by $31,327,000 or 20.0%, in 2013 compared to the 2012 period, as adjusted, due to $28,295,000 of revenue related to the addition of the Stoney River concept, and a $5,317,000 increase in revenue at the same store J. Alexanders restaurants open for both periods, which more than offset the $2,285,000 decrease in revenue associated with the closure of the Chicago J. Alexanders location.
Average weekly same store sales per J. Alexanders restaurant increased by 5.0% to $102,200 during 2013 compared to $97,300 in the 2012 period, as adjusted. For the Stoney River restaurants, average weekly net sales per restaurant totaled $64,200 for the 44 weeks of 2013 that we operated Stoney River.
With respect to the J. Alexanders operations, the estimated average check per guest in 2013 was $28.63, up approximately 1.9% from the estimated $28.09 in the 2012 period, as adjusted. Average menu prices increased by approximately 0.9% in 2013 compared to the 2012 period, as adjusted. These price increase estimates reflect nominal amounts of menu price changes, without regard to any change in product mix because of price increases, and may not reflect amounts actually paid by customers. Estimated weekly average guest counts increased on a same store basis by approximately 1.3% in 2013 compared to the estimated 2012 period, as adjusted.
For the Stoney River concept, the average estimated check per guest during 2013 was $41.11, up approximately 8.5% from the estimated $37.88 during the comparable 44 weeks of 2012. Estimated weekly average guest counts decreased on a same store basis by approximately 12.0% in 2013 compared to 2012 estimates. The decrease in guest counts is primarily attributable to a decline in the coupons and discounts provided to our guests after we began operating Stoney River and the transition of one location to dinner-only as previously discussed.
We recognize revenue from reductions in liabilities for gift cards which, although they do not expire, are considered to be only remotely likely to be redeemed based on historical redemption rates. These revenues are included in net sales in the amounts of $213,000 for 2013 and $171,000 for the 2012 period, as adjusted.
Restaurant Costs and Expenses
Total restaurant operating expenses were 88.6% of net sales in 2013, up from 87.8% in the 2012 period, as adjusted. The increase in 2013 was due primarily to the impact of the Stoney River restaurants. Restaurant operating expenses as a percentage of net sales at the Stoney River locations were higher than the J. Alexanders locations in part due to the costs of integrating those ten restaurants into the J. Alexanders systems, increased labor training costs to ensure consistent quality across our restaurants, and lower average unit volumes. These higher costs more than offset the combined favorable impact of higher sales within the J. Alexanders same store group of restaurants and the impact of closing the underperforming J. Alexanders in Chicago. Restaurant Operating Profit Margins were 11.4% in 2013 compared to 12.2% in the 2012 period, as adjusted.
98
Cost of sales increased to 32.6% of net sales in 2013 from 31.7% of net sales in the 2012 period, as adjusted, due the impact of higher food costs at the Stoney River restaurants. For the 44 weeks that the Stoney River restaurants were included in the 2013 results, cost of sales were 40.0% compared to 31.3% for the J. Alexanders restaurants in 2013, which was down from 31.7% in the 2012 period, as adjusted. There was no measurable inflation present during 2013 compared to the 2012 period, as adjusted.
Beef purchases represent the largest component of consolidated cost of sales and comprise approximately 30% of this expense category. We purchase beef weekly at market prices. Prices paid for beef within the J. Alexanders restaurants were lower in 2013 than in the 2012 period, as adjusted, by approximately 4.2%.
Restaurant labor and related costs decreased to 31.4% of net sales in 2013 from 32.4% in the 2012 period, as adjusted, due primarily to the effect of higher average weekly sales per restaurant in the J. Alexanders restaurants and the favorable impact of closing the Chicago J. Alexanders restaurant.
Depreciation and amortization of restaurant property and equipment totaled 3.8% of net sales for 2013 and 3.7% in the 2012 period, as adjusted. The favorable impact of higher average weekly same store sales at the J. Alexanders restaurants was offset by additional depreciation expense related to capital expenditures at Stoney River.
Other operating expenses increased to 20.7% of net sales in 2013 from 19.9% of net sales in the 2012 period, as adjusted. The 2013 increase reflects the impact of increased costs related to Stoney River, particularly in the area of repair and maintenance expense, which more than offset the favorable effect of higher average weekly same store sales per restaurant in the J. Alexanders concept and the favorable impact of closing the Chicago J. Alexanders restaurant.
General and Administrative Expenses
Total general and administrative expenses increased by $1,542,000 in 2013 compared to the 2012 period, as adjusted, $1,354,000 of which related to the addition of the Stoney River restaurant operations. As a percentage of net sales, general and administrative expense totaled 6.4% in 2013 compared to 6.7% for the 2012 period, as adjusted, as the favorable impact of improved average weekly same store sales at J. Alexanders, reduced management training costs, reduced non-cash expense associated with the accounting for certain executive salary continuation agreements and certain efficiencies associated with no longer being a stand-alone publicly held company more than offset increases related to Stoney River, incentive compensation, rent, depreciation and amortization, travel and employee relocation costs.
Asset Impairment Charges and Restaurant Closing Costs
As disclosed above, during 2013 we closed the J. Alexanders restaurant in Chicago. At the time the decision to close the restaurant was made, an analysis was performed for asset impairment, and this restaurant was determined to be an impaired location and the related long-lived assets with a carrying amount of $1,583,000 were written down to their fair value of zero, resulting in a non-cash impairment charge of $1,583,000.
In addition to asset impairment charges, we expensed $511,000 of restaurant closing costs in 2013 related to the Chicago location. Restaurant closing costs consisted largely of accruals of remaining rent payments, net of estimated subleases. Additionally, brokerage fees, lease break payments, moving costs and travel are included in restaurant closing costs.
99
Other Income (Expense)
Interest expense increased by $1,931,000 in 2013 compared to the 2012 period, as adjusted, primarily due to interest expense associated with the $20,000,000 FNF Note, and the adjustments recorded in the adjusted period to properly reflect the amortization of the fair value of debt adjustment for a full year.
Income Taxes
Income tax expense of $138,000 included in 2013 reflects the net return to provision adjustment associated with the preparation of the 2012 returns. For the 2012 period, as adjusted, we have reflected a tax provision of $226,000 based on the adjusted pre-tax income of $5,989,000, indicating an effective tax rate of 3.8% for the adjusted period.
Discontinued Operations
As noted above, during 2013 we closed the J. Alexanders restaurants in Orlando and Scottsdale. The Orlando restaurant had been previously classified as an impaired asset, with substantially all of its assets written down to their fair value of zero. At the time the decision to close these restaurants was made, an analysis was performed for asset impairment, and both restaurants were determined to be impaired locations and the related long-lived assets with a carrying amount of $2,657,000 were written down to their fair value of zero, resulting in a non-cash impairment charge of $2,657,000.
In addition to asset impairment charges, we expensed $1,827,000 of restaurant closing costs in 2013 relative to these two locations, which is also presented in the Loss from discontinued operations, net line item. Restaurant closing costs consisted largely of accruals of remaining rent payments, net of estimated subleases. Additionally, brokerage fees, lease break payments, moving costs and travel are included in restaurant closing costs.
Finally, we incurred operating losses of $301,000 relative to these locations during 2013 compared to operating losses of $1,918,000 in the 2012 period, as adjusted.
100
Year Ended December 29, 2013 Compared to Periods from January 2, 2012 to September 30, 2012 (Predecessor Period) and October 1, 2012 to December 30, 2012 (Successor Period)
The nine months ended September 30, 2012 and the three months ended December 30, 2012 are distinct reporting periods as a result of the JAC acquisition. The following tables set forth, for the periods indicated, our consolidated results, including our results expressed as a percentage of net sales, and other selected operating data:
Successor | Predecessor |
Percent
Change |
||||||||||||||||
December 29,
2013 |
October 1, 2012 to
December 30, 2012 |
January 2, 2012 to
September 30, 2012 |
2013 v. 2012 | |||||||||||||||
Net sales |
$ 188,223 | $ 40,341 | $ 116,555 | 20.0 | % | |||||||||||||
Costs and expenses: |
||||||||||||||||||
Cost of sales |
61,432 | 12,883 | 36,858 | 23.5 | % | |||||||||||||
Restaurant labor and related costs |
59,032 | 12,785 | 38,050 | 16.1 | % | |||||||||||||
Depreciation and amortization of restaurant property and equipment |
7,228 | 1,425 | 4,117 | 30.4 | % | |||||||||||||
Other operating expenses |
39,016 | 7,849 | 23,175 | 25.8 | % | |||||||||||||
Total restaurant operating expenses |
166,708 | 34,942 | 102,200 | 21.6 | % | |||||||||||||
Transaction and integration expenses |
(217) | 183 | 4,537 | -104.6 | % | |||||||||||||
General and administrative expenses |
11,981 | 2,330 | 8,109 | 14.8 | % | |||||||||||||
Asset impairment charges and restaurant closing costs |
2,094 | | | NM | ||||||||||||||
Total operating expenses |
180,566 | 37,455 | 114,846 | 18.6 | % | |||||||||||||
Operating income |
7,657 | 2,886 | 1,709 | 66.6 | % | |||||||||||||
Other income (expense): |
||||||||||||||||||
Interest expense |
(2,888) | (187) | (1,174) | 112.2 | % | |||||||||||||
Gain on extinguishment of debt |
2,938 | | | NM | ||||||||||||||
Stock option expense |
| | (229) | -100.0 | % | |||||||||||||
Other, net |
117 | 26 | 68 | 24.5 | % | |||||||||||||
Total other income (expense) |
167 | (161) | (1,335) | -111.2 | % | |||||||||||||
Income from continuing operations before income taxes |
7,824 | 2,725 | 374 | 152.5 | % | |||||||||||||
Income tax (expense) benefit |
(138) | (1) | 79 | -276.9 | % | |||||||||||||
Loss from discontinued operations, net |
(4,785) | (506) | (1,412) | 149.5 | % | |||||||||||||
Net income (loss) |
$ 2,901 | $ 2,218 | $ (959) | 130.4 | % | |||||||||||||
101
As a Percentage of Net Sales | Successor | Predecessor | ||||||||||||||
December 29,
2013 |
October 1,
2012 to December 30, 2012 |
January 2,
2012 to September 30, 2012 |
||||||||||||||
Costs and expenses |
||||||||||||||||
Cost of sales |
32.6% | 31.9% | 31.6% | |||||||||||||
Restaurant labor and related costs |
31.4% | 31.7% | 32.6% | |||||||||||||
Depreciation and amortization of restaurant property and equipment |
3.8% | 3.5% | 3.5% | |||||||||||||
Other operating expenses |
20.7% | 19.5% | 19.9% | |||||||||||||
Total restaurant operating expenses |
88.6% | 86.6% | 87.7% | |||||||||||||
Transaction and integration expenses |
-0.1% | 0.5% | 3.9% | |||||||||||||
General and administrative expenses |
6.4% | 5.8% | 7.0% | |||||||||||||
Asset impairment charges and restaurant closing costs |
1.1% | * | * | |||||||||||||
Total operating expenses |
95.9% | 92.8% | 98.5% | |||||||||||||
Operating income |
4.1% | 7.2% | 1.5% | |||||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
-1.5% | -0.5% | -1.0% | |||||||||||||
Gain on extinguishment of debt |
1.6% | * | * | |||||||||||||
Stock option expense |
* | * | -0.2% | |||||||||||||
Other, net |
0.1% | 0.1% | 0.1% | |||||||||||||
Total other income (expense) |
0.1% | -0.4% | -1.1% | |||||||||||||
Income from continuing operations before income taxes |
4.2% | 6.8% | 0.3% | |||||||||||||
Income tax (expense) benefit |
-0.1% | * | 0.1% | |||||||||||||
Loss from discontinued operations, net |
-2.5% | -1.3% | -1.2% | |||||||||||||
Net income (loss) |
1.5% | 5.5% | -0.8% | |||||||||||||
*Less than 0.1%
NM means not meaningful
Net Sales
Net sales totaled $188,223,000 in 2013 compared to $116,555,000 for the 2012 Predecessor Period and $40,341,000 for the 2012 Successor Period. Net sales for 2013 include $28,295,000 associated with the addition of the Stoney River concept and a $5,317,000 increase in net sales for the 30 J. Alexanders restaurants open for all relevant periods, which more than offset the $2,285,000 decrease associated with the closure of the Chicago J. Alexanders location.
Average weekly same store sales per restaurant for J. Alexanders totaled $102,200 during 2013 compared to $96,400 for the 2012 Predecessor Period and $99,700 for the 2012 Successor Period. For the Stoney River restaurants, average weekly same store sales per restaurant totaled $64,200 for the 44 weeks subsequent to the transfer by FNH of the Stoney River Assets to us.
With respect to the J. Alexanders operations, the average check per guest, in 2013 was $28.63, compared to $27.97 for the Predecessor Period and $28.44 for the Successor Period. Management estimates that average menu prices increased by approximately 0.9% in 2013 compared to 3.9% for the 2012 Predecessor Period and 1.9% for the 2012 Successor Period. Weekly average guest counts decreased on a same store basis by approximately 1.5% during the Predecessor period and 0.5% during the 2012 Successor Period.
For the Stoney River concept, the estimated average check per guest during 2013 was $41.11.
102
We recognize revenue from reductions in liabilities for gift cards which, although they do not expire, are considered to be only remotely likely to be redeemed based on historical redemption rates. These revenues are included in net sales in the amounts of $213,000 for 2013, $26,000 for the 2012 Predecessor Period and $145,000 for the 2012 Successor Period.
Restaurant Costs and Expenses
Total restaurant operating expenses were 88.6% of net sales in 2013, compared to 87.7% for the 2012 Predecessor Period and 86.6% for the 2012 Successor Period. The 2013 percentage reflects the impact of the Stoney River restaurants, which were not as profitable as the J. Alexanders locations in part due to the costs of integrating those ten restaurants into the J. Alexanders systems, increased labor training costs to ensure consistent quality across our restaurants, and lower average unit volumes. The favorable impact of higher average weekly same store sales within the J. Alexanders restaurants combined with the favorable impact of closing the underperforming J. Alexanders in Chicago were offset by the difference in the Stoney River profitability. Restaurant Operating Profit Margins were 11.4% in 2013 compared to 12.3% for the 2012 Predecessor Period and 13.4% for the 2012 Successor Period.
Cost of sales totaled 32.6% of net sales in 2013 compared to 31.6% for the 2012 Predecessor Period and 31.9% for the 2012 Successor Period. The 2013 percentage reflects the impact of higher food costs at the Stoney River restaurants. For the 44 weeks that the Stoney River restaurants were included in the 2013 results, cost of sales was 40.0% compared to 31.3% for the J. Alexanders restaurants in 2013.
Beef purchases represent the largest component of consolidated cost of sales and comprise approximately 30% of this expense category. We purchase beef weekly at market prices. Prices paid for beef within the J. Alexanders restaurants were lower in 2013 than in the 2012 Predecessor Period by approximately 4.9% and the 2012 Successor Period by approximately 2.5%.
Restaurant labor and related costs totaled 31.4% of net sales in 2013 compared to 32.6% for the 2012 Predecessor Period and 31.7% for the 2012 Successor Period. The 2013 percentage reflects the favorable effect of higher average weekly same store sales in the J. Alexanders restaurants and the favorable impact of closing the Chicago J. Alexanders restaurant.
Depreciation and amortization of restaurant property and equipment totaled 3.8% of net sales for 2013 compared to 3.5% for both the Predecessor Period and the Successor Period in 2012. The 2013 percentage reflects additional depreciation expense associated with the allocation of FNFs purchase price for JAC to the acquired assets based on estimated fair values as of October 1, 2012 and additional depreciation expense related to capital expenditures within the Stoney River group of restaurants.
Other operating expenses totaled 20.7% of net sales in 2013 compared to 19.9% for the 2012 Predecessor Period and 19.5% for the 2012 Successor Period. The 2013 increase reflects the impact of increased costs related to Stoney River, particularly in the area of repair and maintenance expense, which more than offset the favorable effect of higher average weekly same store sales per restaurant in the J. Alexanders concept and the favorable impact of closing the Chicago J. Alexanders restaurant.
103
General and Administrative Expenses
General and administrative expenses totaled $11,981,000 in 2013 compared to $8,109,000 for the 2012 Predecessor Period and $2,330,000 for the 2012 Successor Period. The 2013 total includes $1,354,000 related to the addition of the Stoney River restaurant operations. As a percentage of net sales, general and administrative expense totaled 6.4% in 2013 compared to 7.0% for the Predecessor Period and 5.8% for the 2012 Successor Period.
Asset Impairment Charges
During 2013, we closed the J. Alexanders restaurant in Chicago. At the time the decision to close the restaurant was made, an analysis was performed for asset impairment, and this restaurant was determined to be an impaired location and the related long-lived assets with a carrying amount of $1,583,000 were written down to their fair value of zero, resulting in a non-cash impairment charge of $1,583,000.
In addition to asset impairment charges, we expensed $511,000 of restaurant closing costs in 2013 relative to the Chicago location, which is also presented in the Asset impairment charges and restaurant closing costs line item. Restaurant closing costs consisted largely of accruals of remaining rent payments, net of estimated subleases. Additionally, brokerage fees, lease break payments, moving costs and travel are included in restaurant closing costs.
There were no asset impairment charges during either the Predecessor Period or the Successor Period.
Other Income (Expense)
Interest expense totaled $2,888,000 in 2013 compared to $1,174,000 for the 2012 Predecessor Period and $187,000 for the 2012 Successor Period. The 2013 total includes $2,139,000 of interest expense associated with the $20,000,000 FNF Note.
In 2013, we obtained a new credit facility and the previous mortgage loan was paid off. A gain on the debt extinguishment of $2,938,000 was recorded as the reacquisition price was less than the carrying amount of the debt, due to the fact that the carrying value included a fair-value adjustment made in connection with the purchase accounting for the JAC acquisition.
Income Taxes
Income tax expense of $138,000 included in 2013 reflects the net return to provision adjustment associated with the preparation of the 2012 returns. Income tax benefit for the 2012 Predecessor Period totaled $79,000 compared to expense of $1,000 for the 2012 Successor Period.
Discontinued Operations
During 2013, we closed the J. Alexanders restaurants in Orlando and Scottsdale. The Orlando restaurant had been previously classified as an impaired asset, with substantially all of its assets written down to their fair value of zero. At the time the decision to close these restaurants was made, an analysis was performed for asset impairment, and both restaurants were determined to be impaired locations and the related long-lived assets with a carrying amount of $2,657,000 were written down to their fair value of zero, resulting in a non-cash impairment charge of $2,657,000.
104
In addition to asset impairment charges, we expensed $1,827,000 of restaurant closing costs in 2013 relative to these two locations, which is also presented in the Loss from discontinued operations, net line item. Restaurant closing costs consisted largely of accruals of remaining rent payments, net of estimated subleases. Additionally, brokerage fees, lease break payments, moving costs and travel are included in restaurant closing costs.
We incurred operating losses of $301,000 relative to these locations during 2013 compared to operating losses of $1,412,000 for the 2012 Predecessor Period and $506,000 for the 2012 Successor Period.
Liquidity And Capital Resources
Liquidity
Our principal sources of cash are cash and cash equivalents on hand, cash flow from operations and available borrowings under our credit facility. As of March 29, 2015, cash and cash equivalents totaled $11,955,000. Our capital needs are primarily for the development and construction of new restaurants, maintenance of and improvements to our existing restaurants, and meeting debt service requirements and operating lease obligations. Based on our current growth plans, we believe our cash on hand, expected cash flows from operations and available borrowings under our credit facility will be sufficient to finance our planned capital expenditures and other operating activities for the next twelve months.
Consistent with many other restaurant companies, we use operating lease arrangements for many of our restaurants. We believe that these operating lease arrangements provide appropriate leverage for our capital structure in a financially efficient manner.
Our liquidity may be adversely affected by a number of factors, including a decrease in guest traffic or average check per customer due to changes in economic conditions, as described elsewhere in this information statement under the heading Risk Factors.
Cash Flows
The table below shows our net cash flows from operating, investing and financing activities for the Successor and Predecessor periods, as indicated (in thousands):
Successor | Predecessor | |||||||||||||||||||||||
Thirteen
weeks ended March 29, 2015 |
Thirteen
weeks ended March 30, 2014 |
Fiscal year
ended December 28, 2014 |
Fiscal year
ended December 29, 2013 |
October 1,
2012 to December 20, 2012 |
January 2, 2012 to
September 20, 2012 |
|||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
Net cash provided by (used in) |
||||||||||||||||||||||||
Operating activities |
$ 2,125 | $ 2,635 | $ 17,955 | $ 15,907 | $ 5,656 | $ 3,036 | ||||||||||||||||||
Investing activities |
(3,050) | (997) | (10,693) | (6,126) | (1,159) | (2,608 | ) | |||||||||||||||||
Financing activities |
(421) | (429) | (12,030) | (2,839) | (223) | (7,941 | ) | |||||||||||||||||
Net increase (decrease) in cash and cash equivalent |
$ (1,346) | $ 1,209 | $ (4,768) | $ 6,942 | $ 4,274 | $ (7,513 | ) | |||||||||||||||||
105
Operating Activities . Net cash flows provided by operating activities decreased to $2,125,000 for the first three months of 2015 from $2,635,000 for the corresponding period of 2014, a decrease of $510,000. Our operations generate receipts from customers in the form of cash and cash equivalents, with receivables related to credit card payments considered cash equivalents due to their relatively short settlement period, and the majority of our expenses are paid within a 30-day pay period. Therefore, increases in restaurant operating profit generally increase our cash flows from operations. While restaurant operating income did increase by $1,216,000 in the first quarter of 2015 compared to the corresponding period of 2014, the payment of incentive compensation related to fiscal 2014 during the first quarter of 2015 was approximately $995,000 higher than corresponding payments during the first quarter of 2014. Additionally, the timing of year-end and first quarter check runs, as well as the timing of payment of prepaid insurance premiums, resulted in a combined decrease to cash flow from operations of approximately $790,000 in the first quarter of 2015.
Net cash flows provided by operating activities totaled $17,955,000 in fiscal year 2014 compared to $15,907,000 in fiscal year 2013, an increase of $2,048,000. The increase is attributable partially to the increase in restaurant operating profit of $6,496,000 in 2014 as compared to fiscal 2013. Additionally, transaction and integration costs paid in 2014 totaled $330,000, down from approximately $625,000 in such net disbursements in fiscal 2013. Also in 2013, cash flows from operations decreased due to the payment of certain severance benefits of approximately $985,000. These increases in cash flows in 2014 compared to 2013 were partially offset by an increase in bonus payments funded in 2014 of $1,232,000, a reduction in tax refunds received in 2014 of $331,000, and the payment of certain pre-opening costs in the fourth quarter of 2014 totaling approximately $559,000. An additional use of cash in 2014 was the payment of interest accrued on the FNF Note that had accrued through December 14, 2014. As a result, cash interest payments in 2014 were $3,811,000 more than in 2013.
Net cash flows provided by operating activities increased to $15,907,000 in fiscal year 2013 from $5,656,000 in the successor period of 2012 and $3,036,000 in the predecessor period of 2012. The increase is partially attributable to the increase in restaurant operating profit of $1,761,000 in 2013 as compared to the predecessor and successor 2012 periods combined. Additionally, the predecessor and successor periods of 2012 included cash outflows from transaction costs paid related to the FNF acquisition of approximately $3,880,000, while the 2013 fiscal year included cash outflows of approximately $1,610,000 related to the same acquisition and payout of certain severance benefits discussed above. Further, the effect of the refinancing of our long-term debt and the interest accrual from the FNF Note had the combined effect of increasing cash flow from operations in 2013 by approximately $2,430,000 over the predecessor and successor periods of 2012 combined. We also paid approximately $535,000 less in taxes in 2013 as compared to the predecessor and successor periods of 2012.
Investing Activities . Net cash used in investing activities for the 13 weeks ended March 29, 2015 totaled $3,050,000 compared to $997,000 in the corresponding period of 2014, with the increase in 2015 being attributed primarily to capital expenditures related to the completion of the J. Alexanders restaurant which opened in Columbus, Ohio during November 2014 and a major remodel of a J. Alexanders restaurant which took place during the first quarter of 2015.
Net cash used in investing activities for the fiscal year ended December 28, 2014 totaled $10,693,000 and was related primarily to the construction of a new J. Alexanders restaurant in Columbus, Ohio, remodeling projects at five restaurants totaling $1,785,000, and capital expenditures for routine replacement of equipment and image maintenance.
106
Net cash used in investing activities for the fiscal year ended December 29, 2013 totaled $6,126,000 and was related primarily to capital expenditures for remodeling projects at five restaurants totaling $1,639,000 as well as capital expenditures for routine replacement of equipment and image maintenance totaling $4,487,000.
For the Successor period from October 1, 2012 to December 30, 2012, net cash used in investing activities totaled $1,159,000 and was related to capital expenditures for routine replacement of equipment and image maintenance for the J. Alexanders restaurants. For the Predecessor period from January 2, 2012 to September 30, 2012, net cash used in investing activities totaled $2,608,000 and was related primarily to capital expenditures for routine replacement of equipment and image maintenance for the J. Alexanders restaurants.
Financing Activities . Net cash used in financing activities for the 13 weeks ended March 29, 2015 totaled $421,000 compared to $429,000 in the corresponding period of 2014. The amounts for both periods relate to servicing of the outstanding debt.
Net cash used in financing activities for the fiscal year ended December 28, 2014 totaled $12,030,000 and consisted primarily of $11,719,000 in payments on outstanding debt, with $10,000,000 of this amount representing a prepayment of obligations due under the $20,000,000 note payable to FNF.
Net cash used in financing activities for the fiscal year ended December 29, 2013 totaled $2,839,000 and consisted of payments related to servicing mortgage debt totaling $17,716,000, proceeds from refinancing the mortgage debt in the amount of $15,000,000, and payment of debt issuance costs associated with the refinancing of the mortgage totaling $123,000.
For the Successor period from October 1, 2012 to December 30, 2012, net cash used in financing activities totaled $223,000 and was related primarily to servicing the outstanding mortgage debt. For the Predecessor period from January 2, 2012 to September 30, 2012, net cash used in financing activities totaled $7,941,000 and was primarily related to the repurchase of outstanding stock options in connection with the JAC acquisition totaling $7,643,000, mortgage debt service totaling $832,000 and proceeds from the exercise of stock options totaling $254,000.
Capital Resources
Long-Term Capital Requirements
Our capital requirements are primarily dependent upon the pace of our growth plan and resulting new restaurants. Our growth plan is dependent on many factors, including economic conditions, real estate markets, restaurant locations and nature of lease agreements. Our capital expenditure outlays are also dependent on costs for maintenance in our existing restaurants as well as information technology and other general corporate capital expenditures.
The capital resources required for a new restaurant depend on the concept, the size of the building and whether the restaurant is a ground-up build-out or a conversion. We estimate development costs, net of landlord contributions and excluding pre-opening costs, will range from $4,500,000 to $5,500,000 for a new J. Alexanders or Redlands Grill, and $3,500,000 to $4,500,000 for a new Stoney River. In addition, we expect to spend approximately $625,000 per restaurant for pre-opening expenses and pre-opening rent expense.
107
In addition to new store development, we plan to remodel three of our Stoney River restaurants and four of our J. Alexanders restaurants during 2015. During 2014, we remodeled two J. Alexanders restaurants and three Stoney River restaurants at an average cost of $357,000 per location. During 2013, we remodeled three J. Alexanders restaurants and two Stoney River restaurants at an average cost of $385,000 per location. We expect to complete three to four J. Alexanders or Redlands Grill remodels each year at an average cost of $250,000 to $300,000 per location.
For 2015, we currently estimate capital expenditure outlays will range between $10,000,000 and $12,000,000, net of any tenant incentives and excluding pre-opening costs. These estimates are based on an estimated opening of one new restaurant in Memphis, Tennessee as well as $8,000,000 to improve our existing restaurants and for general corporate purposes.
We believe that we can fund our growth plan with cash on hand, cash flows from operations and, if necessary, by the use of our credit facility, depending upon the timing of expenditures.
Short-Term Capital Requirements
Our operations have not required significant working capital. Many companies in the restaurant industry operate with a working capital deficit. Guests pay for their purchases with cash or by credit card at the time of the sale while restaurant operations do not require significant inventories or receivables. In addition, trade payables for food and beverage purchases and other obligations related to restaurant operations are not typically due for approximately 30 days after the sale takes place. Since requirements for funding accounts receivable and inventories are relatively insignificant, virtually all cash generated by operations is available to meet current obligations. We had working capital of $393,000 at March 29, 2015 as compared to a working capital deficit of $4,102,000 at December 28, 2014. Management does not believe a low working capital position or working capital deficits impair our overall financial condition.
Credit Facility
Our prior mortgage loan outstanding as of December 30, 2012, which was obtained in 2002 in the original amount of $25,000,000, had an effective annual interest rate, including the effect of the amortization of deferred loan costs, of 8.6% and was payable in equal monthly installments of principal and interest of approximately $212,000, through November 2022.
In 2009, we obtained a bank loan agreement that provided for a three-year $5,000,000 revolving line of credit from Pinnacle Bank, which could be used for general corporate purposes and expired on May 22, 2012. We refinanced the loan as a $6,000,000 line of credit from Pinnacle Bank with substantially similar terms on June 27, 2012. The revolving line of credit was secured by liens on certain personal property, subsidiary guaranties, and a negative pledge on certain real property and there were no outstanding amounts borrowed under the line of credit as of December 30, 2012.
On September 3, 2013, the mortgage loan obtained in 2002 was paid in full. At that time, the previous line of credit agreement from Pinnacle Bank was also refinanced, and we obtained a new $16,000,000 credit facility with Pinnacle Bank that provided two new loans from Pinnacle Bank. The borrower under this credit facility was J. Alexanders, LLC, and the credit facility was guaranteed by J. Alexanders Holdings, LLC and all of its significant subsidiaries. The new credit facility consisted of a three-year $1,000,000 revolving line of credit, which replaced the previous line of credit and may be used for general corporate purposes, and a seven-year $15,000,000 Mortgage Loan. On December 9, 2014, we executed an Amended and Restated Loan Agreement which encompasses the two existing credit facilities discussed above dated September 3, 2013 and also included a five-year, $15,000,000
108
development line of credit. On May 20, 2015, we executed a Second Amended and Restated Loan Agreement (the Loan Agreement), which increased the development line of credit to $20,000,000 over a five-year term and also included a five-year, $10,000,000 term loan (the Term Loan), the proceeds of which were used to repay in full the $10,000,000 outstanding under a note to FNF which was scheduled to mature January 31, 2016. The indebtedness outstanding under these facilities is secured by liens on certain personal property of J. Alexanders Holdings, LLC and its subsidiaries, subsidiary guaranties, and a mortgage lien on certain real property.
The 2013 refinancing was accounted for as a debt extinguishment, as an alternative lender was selected with respect to the new term loan. A $2,938,000 gain relative to the transaction was recorded, as the reacquisition price was less than the carrying amount of the debt as of the date of refinancing, which was due to the fact that the carrying amount of the debt included an adjustment made in purchase accounting to record the mortgage debt at fair value. In connection with the 2013 and 2014 refinancing transactions, lender and legal fees in the amount of $123,000 and $175,000, respectively were incurred, which were capitalized as deferred loan costs and are being amortized over the respective lives of the loans under the credit facility.
Any amount borrowed under the 2013 revolving line of credit bears interest at an annual rate of 30 day LIBOR plus a margin equal to 2.50%, with a minimum interest rate of 3.25% per annum. The Mortgage Loan bears interest at an annual rate of 30 day LIBOR plus a margin equal to 2.50%, with a minimum and maximum interest rate of 3.25% and 6.25% per annum, respectively. Both the development line of credit and the Term Loan bear interest at LIBOR plus 220 basis points. The Term Loan is structured on an interest only basis for the first 24 months of the term, followed by a 36 month amortization. The Loan Agreement, among other things, permits payments of tax dividends to members, limits capital expenditures, asset sales and liens and encumbrances, prohibits dividends, and contains certain other provisions customarily included in such agreements.
The Loan Agreement also includes certain financial covenants. A fixed charge coverage ratio of at least 1.25 to 1 as of the end of any fiscal quarter based on the four quarters then ending must be maintained. The fixed charge coverage ratio is defined in the loan agreement as the ratio of (a) the sum of net income for the applicable period (excluding the effect on such period of any extraordinary or nonrecurring gains or losses, including any asset impairment charges, restaurant closing expenses, changes in valuation allowance for deferred tax assets, and non-cash deferred income tax benefits and expenses and up to $1,000,000 (in the aggregate for the term of the loans) in uninsured losses) plus depreciation and amortization plus interest expense plus rent payments plus noncash share based compensation expense minus the greater of either actual store maintenance capital expenditures (excluding major remodeling or image enhancements) or the total number of stores in operation for at least 18 months multiplied by $40,000 to (b) the sum of interest expense during such period plus rent payments made during such period plus payments of long term debt and capital lease obligations made during such period, all determined in accordance with GAAP.
In addition, the maximum adjusted debt to EBITDAR ratio must not exceed 4.0 to 1 at the end of any fiscal quarter. Under the Loan Agreement, EBITDAR is measured based on the then ending four fiscal quarters and is defined as the sum of net income for the applicable period (excluding the effect on such period of any extraordinary or nonrecurring gains or losses, including any asset impairment charges, restaurant closing expenses, changes in valuation allowance for deferred tax assets and non-cash deferred income tax benefits and expenses and up to $1,000,000 (in the aggregate for the term of the loans) in uninsured losses) plus an amount that in the determination of net income for the applicable period has been deducted for (i) interest expense; (ii) total federal, state, foreign, or other income taxes; (iii) all depreciation and amortization; (iv) rent payments; and (v) non-cash share based compensation, all as determined in accordance with GAAP. Adjusted debt is (i) funded debt obligations net of any short-term investments, cash and cash equivalents plus (ii) rent payments multiplied by
109
seven. The $20,000,000 FNF Note was subordinated to borrowings outstanding under the credit facility and, for purposes of calculating the financial covenants, this note and related interest expense were excluded from the calculations.
If an event of default shall occur and be continuing under the Loan Agreement, the commitment under the Loan Agreement may be terminated and any principal amount outstanding, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable. J. Alexanders, LLC was in compliance with these financial covenants as of December 28, 2014 and for all reporting periods during the year then ended.
No amounts were outstanding under the revolving line of credit or the development line of credit at December 28, 2014, or subsequent to that time through March 29, 2015. At March 29, 2015, $12,500,000 was outstanding under the Mortgage Loan. The Amended and Restated Loan Agreement in place at March 29, 2015 is secured by the real estate, equipment and other personal property of eight of the J. Alexanders restaurant locations and one Redlands Grill location with an aggregate net book value of $24,438,000 at March 29, 2015. In conjunction with the refinancing under the Second Amended and Restated Loan Agreement, three additional properties were taken as collateral, bringing the total to 11 J. Alexanders and one Redlands Grill at May 20, 2015.
Deferred loan costs were $271,000 and $120,000, net of accumulated amortization expense of $28,000 and $3,000 at December 28, 2014 and December 29, 2013, respectively. Deferred loan costs are being amortized to interest expense using the effective interest method over the life of the related debt.
The carrying value of the debt balance under the Term Loan at December 28, 2014, is considered to approximate its fair value because of the proximity of the debt refinancing discussed above to the fiscal year-end.
As of December 28, 2014, the aggregate maturities of long term debt for the five fiscal years succeeding December 28, 2014 are as follows:
|
2015$1,671,000; |
|
2016$11,667,000; |
|
2017$1,667,000; |
|
2018$1,667,000; |
|
2019$1,667,000; and |
|
$4,582,000 thereafter. |
110
Contractual Obligations
The following table summarizes our contractual obligations as of December 28, 2014 (in thousands):
Total |
Less than
1 year |
1-3
years (2) |
3-5
years |
More than
5 years |
||||||||||||||||
Long-term debt |
$ | 22,921 | $ | 1,671 | $ | 13,334 | $ | 3,334 | $ | 4,582 | ||||||||||
Interest payments on long-term debt(1) |
3,078 | 395 | 2,061 | 411 | 211 | |||||||||||||||
Operating leases |
30,427 | 6,028 | 10,417 | 7,386 | 6,596 | |||||||||||||||
|
|
|||||||||||||||||||
Total |
$ | 56,426 | $ | 8,094 | $ | 25,812 | $ | 11,131 | $ | 11,389 | ||||||||||
|
|
(1) Interest payments on current credit facility estimated at current interest rate of 3.25%.
(2) Includes $10,000,000 principal amount and related interest due on note payable to FNF which was repaid in full on May 20, 2015.
We believe that cash on hand, net cash provided by operating activities and available borrowings under our credit facility will be sufficient to fund currently anticipated working capital, planned capital expenditures and debt service. We were in compliance with the financial covenants of our debt agreements as of March 29, 2015. Should we fail to comply with these covenants, management would likely request waivers of the covenants, attempt to renegotiate them or seek other sources of financing. However, if these efforts were not successful, the unused portion of our revolving line of credit would not be available for borrowing and amounts outstanding under our debt agreements could become immediately due and payable, and there could be a material adverse effect on our financial condition and operations.
We regularly review acquisitions and other strategic opportunities, which may require additional debt or equity financing. We currently do not have any pending agreements or understandings with respect to any acquisition or other strategic opportunities.
Off Balance Sheet Arrangements
As of March 29, 2015, we had no financing transactions, arrangements or other relationships with any unconsolidated affiliated entities. Additionally, we are not a party to any financing arrangements involving synthetic leases or trading activities involving commodity contracts. Operating lease commitments for leased restaurants and office space are disclosed in Note 12, Leases, and Note 16, Contingencies, to the Consolidated Financial Statements.
111
Contingent Obligations
From 1975 through 1996, we operated restaurants in the quick-service restaurant industry. The discontinuation of these quick-service restaurant operations included disposals of restaurants that were subject to lease agreements which typically contained initial lease terms of 20 years plus two additional option periods of five years each. In connection with certain of these dispositions, we may remain secondarily liable for ensuring financial performance as set forth in the original lease agreements. We can only estimate our contingent liability relative to these leases, as any changes to the contractual arrangements between the current tenant and the landlord subsequent to the assignment are not required to be disclosed to us. A summary of our estimated contingent liability as of March 29, 2015, is as follows (in thousands):
Wendys restaurants (11 leases) |
$ | 1,900 | ||
Mrs. Winners Chicken & Biscuits restaurants (1 lease) |
300 | |||
|
|
|||
Total contingent liability relating to assigned leases |
$ | 2,200 | ||
|
|
We have never been required to pay any such contingent liabilities.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements, which have been prepared in accordance with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including those related to its accounting for gift card revenue, property and equipment, leases, impairment of long-lived assets, income taxes, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. Management believes the following critical accounting policies are those which involve the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.
Revenue Recognition for Gift Cards
We record a liability for gift cards at the time they are sold to a guest by our gift card subsidiaries. Upon redemption of gift cards, net sales are recorded and the liability is reduced by the amount of card values redeemed. Reductions in liabilities for gift cards which, although they do not expire, are considered to be only remotely likely to be redeemed (based on historical redemption rates) and for which there is no legal obligation to remit balances under unclaimed property laws of the relevant jurisdictions (breakage), have been recorded as revenue and are included in net sales in our Consolidated Statements of Operations.
Based on our historical experience, we consider the probability of redemption of a J. Alexanders gift card to be remote when it has been outstanding for 24 months. With respect to outstanding Stoney River gift cards, breakage has historically been calculated as a percent of gift cards
112
sold and we continued to apply this historical methodology to the Stoney River population of gift cards outstanding subsequent to FNHs transfer of the Stoney River Assets through the period ended March 30, 2014. During the second quarter of 2014, we recorded a change in estimate related to the Stoney River gift card program which resulted in additional breakage of $373,000 being recognized. Prospectively, we will calculate breakage for Stoney River consistent with the approach utilized for J. Alexanders.
Goodwill and Other Intangible Assets
We account for our goodwill and intangible assets in accordance with Accounting Standards Codification (ASC) Topic 350, IntangiblesGoodwill and Other . In accordance with ASC 350, goodwill and intangible assets, primarily trade names, which have indefinite useful lives, are not being amortized. However, both goodwill and trade names are subject to annual impairment testing in accordance with ASC Topic 350.
The impairment evaluation for goodwill is conducted annually as of the fiscal year-end date, or more frequently, if events or changes in circumstances indicate that the asset might be impaired. We first perform a qualitative assessment of impairment for these assets, which includes an analysis of macroeconomic factors, industry and market conditions, internal cost factors, overall financial performance and entity-specific events. If the qualitative analysis results in a determination that further testing must be done, a quantitative impairment test is then performed using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill. The estimated fair value of the reporting unit is generally determined on the basis of discounted future cash flows. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, then a second step must be completed in order to determine the amount of the goodwill impairment that should be recorded. In the second step, the implied fair value of the reporting units goodwill is determined by allocating the reporting units fair value to all of its assets and liabilities other than goodwill in a manner similar to a purchase price allocation. The resulting implied fair value of the goodwill that results from the application of this second step is then compared to the carrying amount of the goodwill and an impairment charge is recorded for the difference.
The evaluation of the carrying amount of other intangible assets with indefinite lives is made annually by comparing the carrying amount of these assets to their estimated fair value. The estimated fair value is generally determined on the basis of discounted future cash flows of the restaurant concepts. We make assumptions regarding future profits and cash flows, expected growth rates, terminal value, and other factors which could significantly impact the fair value calculations. If the estimated fair value is less than the carrying amount of the other intangible assets with indefinite lives, then an impairment charge is recorded to reduce the asset to its estimated fair value.
The assumptions used in the estimate of fair value are generally consistent with the past performance of each reporting unit and other intangible assets and are also consistent with the projections and assumptions that are used in current operating plans. These assumptions are subject to change as a result of changing economic and competitive conditions.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the assets estimated useful life or the expected lease term which generally includes renewal options. Improvements are capitalized while repairs and maintenance costs are expensed as incurred. Because significant judgments are required in estimating useful lives, which are not ultimately known until the passage of time and may be dependent on proper asset maintenance, and in the determination of what
113
constitutes a capitalized cost versus a repair or maintenance expense, changes in circumstances or use of different assumptions could result in materially different results from those determined based on our estimates.
Lease Accounting
We are obligated under various lease agreements for certain restaurant facilities. At inception each lease is evaluated to determine whether it is an operating or capital lease. For operating leases, we recognize rent expense on a straight-line basis over the expected lease term. Capital leases are recorded as an asset and an obligation at an amount equal to the lesser of the present value of the minimum lease payments during the lease term or the fair market value of the leased asset.
Certain of our leases include rent holidays and/or escalations in payments over the base lease term, as well as the renewal periods. The effects of the rent holidays and escalations have been reflected in rent expense on a straight-line basis over the expected lease term, which begins when we take possession of or are given control of the leased property and includes cancelable option periods when it is deemed to be reasonably assured that we will exercise our options for such periods because we would incur an economic penalty for not doing so. Rent expense incurred during the construction period for a leased restaurant is included in pre-opening expense.
Leasehold improvements and, when applicable, property held under capital lease for each leased restaurant facility are amortized on the straight-line method over the shorter of the estimated life of the asset or the expected lease term used for lease accounting purposes. Percentage rent expense is based upon sales levels and is typically accrued when it is deemed probable that it will be payable. Allowances for tenant improvements received from lessors are recorded as deferred rent obligations and credited to rent expense over the term of the lease on a straight-line basis.
Judgments made by management about the probable term for each restaurant facility lease affect the payments that are taken into consideration when calculating straight-line rent expense and the term over which leasehold improvements and assets under capital lease are amortized. These judgments may produce materially different amounts of depreciation, amortization and rent expense than would be reported if different assumed lease terms were used.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or changes generally include, but are not necessarily limited to, a current period operating loss or cash flow deficit. Our assessment of recoverability of property and equipment is performed on a restaurant-by-restaurant basis. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds the estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
The impairment assessment process requires the use of estimates and assumptions regarding future cash flows, operating incomes, and other factors, which are subject to a significant degree of judgment. These include, among other factors, assumptions made regarding a restaurants future period of operation, sales and operating costs and local market expectations. These estimates can be significantly impacted by changes in the economic environment and overall operating performance. Additional impairment charges could be triggered in the future if expected restaurant performance does not support the carrying amounts of the underlying long-lived restaurant assets or if management decides to close a restaurant location.
114
Income Taxes
The predecessor entity, JAC, was organized as a C-corporation, and therefore filed federal and state income tax returns, as required in various jurisdictions. JAC was converted to J. Alexanders LLC on October 30, 2012, and thereafter the filing requirements and related tax liability at both the federal and state level were passed through to the ultimate parent corporation, FNF. In 2013, partnership tax treatment became effective, and the federal and state tax filing requirements for J. Alexanders Holdings, LLC went into effect. Although partnership returns for J. Alexanders Holdings, LLC are filed in most jurisdictions, effectively passing the tax liability to the partners, there are a small number of jurisdictions, Tennessee being one of them, that do not recognize limited liability companies structured as partnerships as disregarded entities for state income tax purposes. In those jurisdictions, we are liable for any applicable state income tax.
Based upon the structure outlined above, certain components of our provision for income taxes must be estimated. These include, but are not limited to, effective state tax rates, the need for a valuation allowance on any established deferred tax assets and estimates related to depreciation expense allowable for tax purposes. These estimates are made based on the best available information at the time the tax provision is prepared. Income tax returns are generally not filed, however, until several months after year-end. All tax returns are subject to audit by federal and state governments, usually years after the returns are filed, and could be subject to differing interpretations of the tax laws.
The above listing is not intended to be a comprehensive listing of all of our accounting policies and estimates. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles, with no need for managements judgment in their application. There are also areas in which managements judgment in selecting any available alternative would not produce a materially different result. For further information, refer to the Consolidated Financial Statements and notes thereto included elsewhere in this filing which contain accounting policies and other disclosures required by GAAP.
Recent Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014 08 Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . ASU No. 2014 08 improves the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entitys operations and financial results. Under current GAAP, many disposals, some of which may be routine in nature and not a change in an entitys strategy, are reported in discontinued operations. Additionally, the amendments in this ASU require expanded disclosures for discontinued operations. The amendments in this ASU also require an entity to disclose the pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. The ASU is effective for annual financial statements with years that begin on or after December 15, 2014. J. Alexanders Holdings, LLC will adopt this guidance in fiscal year 2015 and is currently evaluating the impact on its Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers . The core principle of the standard is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU will replace most existing revenue recognition guidance in GAAP. New qualitative and quantitative disclosure requirements aim to enable financial statement users to understand the nature, amount, timing, and
115
uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective for annual periods beginning after December 15, 2016. Early adoption is not permitted. The ASU permits the use of either the retrospective or cumulative effect transition method. J. Alexanders Holdings, LLC has not yet selected a transition method or determined the effect, if any, that this ASU will have on its Consolidated Financial Statements and related disclosures.
Impact of Inflation and Other Factors
Over the past five years, inflation has not significantly impacted our operations. However, the impact of inflation on labor, food and occupancy costs could, in the future, significantly impact our operations. We pay many of our employees hourly rates related to the applicable federal or state minimum wage. Food costs as a percentage of revenues have been somewhat stable due to our continued focus on procurement efficiencies and menu price adjustments, although no assurance can be made that we can continue to improve our procurement or that we will be able to raise menu prices in the future. By owning a number of our properties, we avoid certain increases in occupancy costs. Costs for construction, taxes, repairs, maintenance and insurance all impact our occupancy costs. We believe our current strategy, which is to seek to maintain operating margins through a combination of menu price increases, cost controls, careful evaluation of property and equipment needs, and efficient purchasing practices has been an effective tool for dealing with inflation. There can be no assurances that future inflation or other cost pressures will be offset by this strategy.
Seasonality and Quarterly Results
Our business operations are subject to seasonal fluctuations comparable to most restaurants. Net sales and operating income typically reach their highest levels during the fourth quarter of the fiscal year due to holiday traffic and the first quarter of the fiscal year due in part to the redemption of gift cards sold during the holiday season. In addition, certain of our restaurants, particularly those located in south Florida, typically experience an increase in customer traffic during the period between Thanksgiving and Easter due to an increase in population in these markets during that portion of the year. Certain of our restaurants are located in areas subject to hurricanes and tropical storms, which typically occur during our third and fourth quarters, and which can negatively affect our net sales and operating results. As a result of these and other factors, our financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year. A summary of our quarterly results for 2014 and 2013 appears in Note 20 to our Audited Consolidated Financial Statements.
Quantitative And Qualitative Disclosures About Market Risk
Interest Rate Risk
The inherent risk in market risk sensitive instruments and positions primarily relates to potential losses arising from adverse changes in interest rates.
We are exposed to market risk from fluctuations in interest rates. For fixed rate debt, interest rate changes affect the fair market value of the debt but do not impact earnings or cash flows. Conversely for variable rate debt, which represents all borrowings outstanding or available under our credit facility, interest rate changes generally do not affect the fair market value of the debt, but do impact future earnings and cash flows, assuming other factors are held constant. As of the date of this information statement, we had no outstanding borrowings on our revolving line of credit or our development line of credit. Both the mortgage loan and revolving line of credit bear interest at an annual rate of 30 day LIBOR plus a margin of 2.5%, with a minimum of 3.25% per annum, whereas the term loan and the development line of credit bear interest at a rate of 30 days LIBOR plus a margin of 2.2%. Assuming a full drawdown on the $1,000,000 revolving line of credit and the $20,000,000
116
development line of credit, and assuming that the variable rate debt was at the minimum rate of 3.25% per annum, a hypothetical immediate one percentage point change in interest rates would be expected to have an impact on pre-tax earnings and cash flows of approximately $435,000 over the course of 12 months.
Commodity Price Risk
We are exposed to market price fluctuations in beef, seafood, produce and other food product prices. Given the historical volatility of beef, seafood, produce and other food product prices, these fluctuations can materially impact our food and beverage costs. While we have taken steps to qualify multiple suppliers who meet our standards as suppliers for our restaurants and have entered into agreements with suppliers for some of the commodities used in our restaurant operations, there can be no assurance that future supplies and costs for such commodities will not fluctuate due to weather and other market conditions outside of our control. Consequently, such commodities can be subject to unforeseen supply and cost fluctuations. Dairy costs can also fluctuate due to government regulation. Because we typically set our menu prices in advance of our food product prices, our menu prices cannot immediately take into account changing costs of food items. To the extent that we are unable to pass the increased costs on to our guests through price increases, our results of operations would be adversely affected. We do not use financial instruments to hedge our risk to market price fluctuations in beef, seafood, produce and other food product prices at this time.
Industry & Competition
The restaurant industry is fragmented and intensely competitive. We believe guests make their dining decisions based on a variety of factors such as menu offering, taste, quality and price of food offered, perceived value, service, atmosphere, location and overall dining experience. Our competitive landscape primarily includes boutique chef-driven local concepts serving American cuisine and run by local restaurant operators as well as some select regional and national upscale dining concepts. According to the NRA, U.S. restaurant industry sales in 2013 were projected at $659 billion, an increase of 3.2% over 2012 sales, and are projected to grow 3.6% to $683 billion in 2014.
We compete in the full service category as defined by Technomic. Each of our concepts falls into this category, which is defined as establishments with a relatively broad menu along with table, counter, and/or booth service and a wait staff. Within full service, we compete in the upscale/polished casual sub-category which is defined as full service restaurants with a chic décor that resembles a fine dining setting, with well-planned and expertly executed lunch and dinner menus at an average check of around $25.00 to $50.00. Within Technomics Top 500 restaurants, the casual dining category achieved nearly $54 billion in sales in the U.S. in 2013, representing a 2.4% growth rate over 2012.
Depending on the specific concept, our restaurants compete with a number of restaurants within their markets, including both locally-owned restaurants and restaurants that are part of regional or national chains. We believe we have two primary types of competitors:
|
Competitors with similar menus and operational characteristics; and |
|
Competitors that market to the same demographic using different menus and formats. |
The number, size and strength of our competitors varies widely by region, however we believe that we benefit from our goal of providing our guests with a combination of check average, food quality and intense levels of service that we believe to be unique in the markets in which we compete.
117
Our concepts have different competitors:
J. Alexanders and Redlands Grill: In virtually all of our markets, we compete primarily against locally-owned boutique restaurants or locally-managed restaurant groups with similar menus and similar concept attributes at check averages that approximate ours. To a lesser extent we compete with restaurant groups, both regional and national, that market to the same upscale restaurant customer and may have menus, formats and check averages that differ from ours. Del Friscos Grill, Kona Grill and Seasons 52 are concepts that would fall within this second category.
Stoney River : Because of the difference in price point and day part (dinner only), Stoney River has a different set of competitors than J. Alexanders and Redlands Grill. Stoney River generally competes with restaurants that are considered steakhouses or have a steakhouse format. In each market where we have locations our primary competitors are locally-owned and operated steakhouses that compete at similar price points. We also compete with national steakhouse chains, commonly referred to as white tablecloth steakhouses, that market to the upscale steakhouse customer, such as The Palm, Ruths Chris Steak House, Mortons The Steakhouse, Del Friscos Double Eagle Steak House, and Flemings Prime Steakhouse and Wine Bar.
BUSINESS
Our Company
We own and operate three complementary upscale dining restaurant concepts: J. Alexanders, Redlands Grill and Stoney River Steakhouse and Grill (Stoney River). For more than 20 years, J. Alexanders guests have enjoyed a contemporary American menu, polished service and an attractive ambiance. In February 2013, our team brought our quality and professionalism to the steakhouse category with the addition of the Stoney River concept. Stoney River provides white tablecloth service and food quality in a casual atmosphere at a competitive price point. Our newest concept, Redlands Grill, offers customers a different version of our contemporary American menu and a distinct architectural design and feel.
Our business plan has evolved over time to include a collection of restaurant concepts dedicated to providing guests with what we believe to be the highest quality food, high levels of professional service and a comfortable ambiance. By offering multiple restaurant concepts and utilizing unique non-standardized architecture and specialized menus, we believe we are positioned to continue to scale and grow our overall restaurant business in an efficient manner in urban and affluent suburban areas. We want each of our restaurants to be perceived by our guests as a locally-managed, stand-alone dining experience. This differentiation permits us to successfully operate each of our concepts in the same geographic market. If this strategy continues to prove successful, we may expand beyond our current three concept model in the future.
While each concept operates under a unique trade name, each of our restaurants is identified as a J. Alexanders Holdings restaurant. As of March 29, 2015, we operated a total of 41 locations across 14 states. We are currently planning to transition between 12 and 15 of our J. Alexanders restaurants to Redlands Grill restaurants. Other restaurant locations may be added or converted in the future as we determine how best to position our multiple concepts in a given geographic market.
118
(1) |
Adjusted EBITDA presented for the 2012 period, as adjusted. See - Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Year Ended December 29, 2013 Compared to Supplemental Pro Forma MD&A Information for the Year Ended December 30, 2012 for a discussion of the adjustments included. |
(2) |
Stoney River is reflected in the 2014 and YTD through March 29, 2015 periods only. |
Restaurant Positioning Strategy
Our business plan has evolved over time to include a collection of restaurant concepts dedicated to providing guests with the highest quality of food, levels of professional service, and ambiance in each of the markets being served. Through unique, non-standardized architecture and specialized menu items, we strive to have each of our restaurants to be perceived as a locally-managed, stand-alone dining experience. Although we have and will continue to develop distinct concepts, we will identify all of our restaurants as a J. Alexanders Holdings Restaurant. We believe our restaurant branding strategy enhances our ability to expand feature menu offerings available to guests on a seasonal or rotational basis and facilitate expansion into certain markets which may currently have one of our concepts. We also believe that having multiple concepts will allow us to expand in markets that might not otherwise have been considered viable for expansion opportunities.
In an effort to further this vision, a number of locations previously operated as J. Alexanders restaurants are scheduled to be converted to restaurants operating under the name Redlands Grill. Effective March 9, 2015, the J. Alexanders restaurant on West End Avenue in Nashville, Tennessee began the process of transitioning to a Redlands Grill, and the Birmingham, Alabama J. Alexanders began the transition process on March 23, 2015. Assuming the initial transitions are successfully completed, we anticipate a total of between 12 and 15 Redlands Grill locations will be operational by the end of fiscal 2015.
In this information statement, we identify each of J. Alexanders and Redlands Grill as a J. Alexanders. Accordingly, unless the context is otherwise, references to J. Alexanders means J. Alexanders and Redlands Grill and other similar restaurants to be developed under separate trade names offering a contemporary American menu.
119
Our Concepts
J. Alexanders
The first J. Alexanders restaurant was opened in 1991 in Nashville, Tennessee. For over twenty years, J. Alexanders has been a quality-focused upscale dining restaurant offering a contemporary American menu in a lively environment with attentive, courteous and professional service. J. Alexanders menu centers around made-from-scratch items with a focus on fresh ingredients providing guests a variety of high quality menu options. We believe J. Alexanders restaurants have a low table to server ratio which, when coupled with our intensive training program and team approach to table service, allows our servers to provide better, more detail-oriented and attentive service. As of March 29, 2015 we had 29 J. Alexanders locations in 12 states.
The J. Alexanders menu features prime rib of beef; hardwood-grilled steaks, seafood and chicken; pasta; salads; soups; and assorted sandwiches, appetizers and desserts. We place special emphasis on high quality and sustainable seafood and daily specials which enable us to efficiently take advantage of variances in food costs. We also incorporate local farm-to-table produce to provide menu variety to our guests. As a part of our commitment to quality, the majority of our soups, sauces, salsa, salad dressings and desserts are made daily from scratch; our steaks are cut in house; and our beef, chicken, seafood and select vegetable offerings are grilled over a genuine hardwood fire. All of our steaks are U.S.D.A. choice beef (or higher) with a targeted aging of 21 to 38 days. We use only Certified Angus Beef ® for all strip steaks and chuck rolls. We grind chuck fresh daily for our hand-pattied burgers. The J. Alexanders food menu is complemented by a comprehensive wine list that offers both familiar varietals as well as wines exclusive to our restaurants.
J. Alexanders restaurants are open for lunch and dinner, seven days a week. The breadth of our menu offering helps generate significant traffic at both lunch and dinner. Lunch entrées range in price from $12.00 to $35.00, while appetizers and entrée salads range from $8.00 to $19.00. Dinner entrée prices range from $12.00 to $35.00, and dinner appetizers and entrée salads range from $8.00 to $19.00. In 2014, lunch and dinner represented approximately 32% and 68% of sales, respectively. Alcohol was 18% of sales for the same period. Our average unit volumes were approximately $5,600,000 in 2014 and some of our restaurants exceed $8,000,000 in annual sales. The average check for J. Alexanders in 2014 was $29.69.
Architecturally, J. Alexanders restaurants employ contemporary designs and unique features contributing to a high-end, upscale environment. Each J. Alexanders location incorporates natural materials such as stone and wood and, for the much of our history, have been craftsman style. Our J. Alexanders restaurants include open floor plans, and in some cases exposed structural steel, in each case giving the restaurants a contemporary feel. The architectural design varies from location to location depending on the space available and several locations include unique attributes such as fire pits or patios. All locations feature original artwork, full bars and open kitchens. We believe this gives our restaurants a boutique, unchained feel which is an important facet of our design and site strategy. J. Alexanders locations range in size from 6,900 to 9,000 square feet and can accommodate up to 220 guests, on average.
Stoney River Steakhouse and Grill
Stoney River is an upscale steakhouse concept that seeks to provide the quality and service of fine dining steakhouses at a lower price point. Stoney River has a high quality steakhouse menu and a broad selection of non-steak entrées with an emphasis on featured items. We believe Stoney River restaurants have a low table to server ratio in line with that of white tablecloth steakhouses. This, coupled with our intensive training program and team approach to table service, allows our servers to
120
provide better, more attentive service. In 2014, Stoney River Legendary Steaks began operating as Stoney River Steakhouse and Grill. As of March 29, 2015, we had ten Stoney River restaurants in six states.
Stoney River offers a high quality steakhouse menu, but unlike menus of many of its more expensive competitors, the menu is not à la carte, and a side item is included with all filets and steaks. Stoney Rivers menu features its popular Coffee-Cured Filet Mignon made with select tenderloin, as well as other U.S.D.A. top choice (or higher) aged beef options. Particularly when compared to steakhouse competitors, Stoney River places special emphasis on a broad selection of steak alternatives including baby back ribs, ahi tuna, pasta, chicken, salmon and other popular non-steak dishes. Beef currently accounts for approximately 70% of our entrée sales. Stoney River also offers an extensive wine list, including high quality and unique selections. The quality of the beef and inclusion of a side item offers our guests a premium offering at a more reasonable price than many steakhouse competitors.
Each restaurant is open for dinner seven days a week, and several are open for lunch or Sunday brunch. Entrées range in price from approximately $12.00 to $42.00, and appetizers and entrée salads range in price from approximately $8.00 to $23.00. Each location has a full bar and alcohol and wine represented approximately 21% of sales in 2014. Our year-to-date average weekly same store sales as of March 29, 2015 were $74,600. During the 13 weeks ended March 29, 2015, the average check for Stoney River was $45.79.
Stoney Rivers basic restaurant design is modeled after an elite and modern mountain lodge style building. As we complete our planned remodeling program we will elevate the decor to a more updated contemporary feel. We have remodeled three restaurants to date and expect to have remodeled five by year-end, with all locations expected to be remodeled by fiscal year-end 2015. Stoney River locations range in size from 6,400 to 8,000 square feet and can accommodate up to 260 guests on average, including private dining spaces. Most locations offer private dining as an option, and private dining accounted for approximately 7.4% of net sales in 2014.
Redlands Grill
We have been working on the development of the Redlands Grill for over twelve months, and began the rollout in the first quarter of 2015. Redlands Grill offers a broad contemporary American cuisine featuring expanded menu offerings on a seasonal or rotational basis. Menu offerings include made-from-scratch flatbreads, sushi, and a strong emphasis on farm-to-table seasonal vegetables. Each restaurant is open for lunch and dinner seven days a week. Menu items are priced substantially similar to those at J. Alexanders restaurants. Currently, we operate two Redlands Grills and plan to transition a total of 12 to 15 locations to this concept by the end of fiscal 2015.
Our Competitive Strengths
Over the more than 20 year operating history of our restaurants, we have developed and refined the following strengths:
Three Distinct Yet Complementary Concepts
J. Alexanders, Redlands Grill and Stoney River are concepts with more than 40 years of combined history, strong brand value and exceptional customer loyalty in their core markets. They blend what we believe are the best attributes of fine and casual dining: a focus on high quality food made with fresh ingredients in a scratch kitchen, exceptional service, diverse menus and individualized interior and exterior design unique to each community. Each concept has a distinct identity, and the differentiation in menu and restaurant design is substantial enough that they can successfully operate in the same markets or retail locations.
121
Over time, we anticipate that we will continue to grow with our multi-concept strategy. Each restaurant concept will have 15 to 20 restaurants competing in the upscale casual dining segment of the restaurant industry. All of our restaurants will take advantage of our professional service system, made-from-scratch high-quality menu items, and our unique architectural designs supported by upscale ambiance. We believe that this strategy will increase our national footprint and overall competitive advantage.
Delivering a Superior Dining Experience with the Highest Quality Service at a Reasonable Price Point
Our restaurant concepts provide a broad range of high-quality menu items that are intended to appeal to a wide range of consumer tastes and which are served by a courteous, professional and well-trained wait-staff. We provide this high-end experience at a reasonable and attractive price point, which we believe helps us cultivate long-term, loyal and highly satisfied guests who place a premium on the price-value relationship that our concepts offer.
Premium, Freshly Made Cuisine . All of our concepts are committed to preparing high quality food from innovative menus. We are selective in our choice of ingredients and menu offerings, including the grades of beef and the freshness of seafood and vegetables we serve. Substantially all protein and vegetable offerings are delivered fresh to our restaurants and are not frozen in transport or in storage prior to being served, and are predominantly preservative and additive-free. We offer made-to-order items prepared from scratch, with approximately 95% of our items, including stocks, sauces and desserts, made in-house daily. Our food menu is complemented by comprehensive wine lists that offer both familiar varietals as well as wines exclusive to our restaurants. While each restaurant concepts menu has its own distinctive profile, we strive to continuously innovate with new ingredients and local farm-to-table produce to provide specials and limited time featured items to keep the experience new and interesting for our guests. All of our new menu items are developed through a process designed to meet our high standards. An important component of the quality assurance system is the preparation of taste plates. Within each concept, 100% of menu items are taste-tested daily by a manager to ensure that only the highest quality, properly prepared food meeting or exceeding our specifications is served in each restaurant. A key position in each restaurant is the Quality Control coordinator (QC). This position is always staffed by a fully-trained manager who inspects every plate of food before it is served to our guests. We believe that the QC inspection by a member of management is a significant and vital factor in maintaining consistent, high food quality.
Outstanding Service . We believe that prompt, courteous and efficient service delivered by a knowledgeable staff is an integral part of our concepts. We enforce strict guidelines on professional appearance for servers as well as timeliness of service. To be sure that all staff are working together to achieve the highest guest satisfaction we employ a low table to server ratio which, when coupled with team serving by a dedicated staff, we believe ensures our guests receive the best service.
Sophisticated Experience . Our concepts use a variety of architectural designs and building finishes to provide guests with beautiful, upscale décor with contemporary and timeless finishes. We are aggressive with our repair and maintenance program in all locations, ensuring that no restaurant ever looks highly trafficked or dated. This results in a lesser need for periodic remodels to reimage a location to acceptable standards.
Attractive Unit Economics and Consistent Execution
We believe that we have a long standing track record of consistently producing high average weekly sales and average unit sales volumes and have proven the viability of our concepts in multiple markets and regions. We have successfully increased our average weekly sales at a compound annual growth rate of 3.2%, from $88,400 in fiscal year 2008 to $107,000 in fiscal year 2014 for the
122
J. Alexanders restaurant concept. Our highest volume J. Alexanders restaurant generated net sales of approximately $8,400,000 in 2014. From fiscal 2008 to fiscal year 2014, we increased our Restaurant Operating Profit Margin by 5.9% from 9.8% to 15.7% at J. Alexanders. Since we began operating Stoney River, we have been able to increase the average weekly sales at the Stoney River restaurants even while implementing significant operational improvements and remodeling several locations. We believe that additional remodels of locations in each of our concepts will contribute to increases in same store sales. Once operational for 36 months, we are targeting average unit volumes and Restaurant Operating Profit Margins for new locations to exceed system-wide fiscal year 2014 levels for all of our concepts.
Strong Cultural Focus on Continuous Training
We believe that our stringent employee hiring standards, coupled with our extensive and continuous training programs for all employees provide outstanding service to our guests at each of our concepts. We prefer to promote our restaurant general managers and regional management from within the organization and approximately 55% of those roles are currently filled by individuals promoted from within. We believe that this helps to ensure that our unique focus and culture of excellent service are thoroughly disseminated throughout our restaurants. We seek to hire management prospects from top culinary programs nationwide and to train them in the J. Alexanders service levels and processes. It can take 3 to 5 years of experience in our system for a management trainee to be qualified for promotion to general manager in one of our locations. We also provide ongoing training opportunities for our back of the house and kitchen staff to ensure they maintain and improve their skills and learn how best to prepare our current and new menu items.
Sophisticated and Scalable Back Office and Operations
We have been in operation for over twenty years and have a long history of operating high volume restaurants. We employ a sophisticated menu development process that has successfully created replicable recipes with a focus on maximizing gross margin by highly efficient use of perishable food inventories to create unique and inviting recipes. Our recipes are developed to use high quality ingredients sourced from long standing relationships with high quality vendors. Most of our protein purchases are negotiated directly with our suppliers. We believe this not only reduces overall food costs but enables us to enforce strict standards on orders and adherence to the detailed instruction manual we provide to producers. Because we deal directly with producers, we are also able to take advantage of seasonal products and provide farm-to-table options that change with the seasons and ingredient availability through our unique featured items menu. Direct relationships with vendors also provide us cost and flexibility advantages that may not be available from third party distributors. We also have a shared services model for our back-office that centralizes certain functionality at our corporate headquarters. Services shared between our concepts include staff training, real estate development, purchasing, human resources, information technology, finance and accounting, further contributing to the complementary nature of our two concepts. We believe that the teams we have put in place to manage these functions, and other non-restaurant operations functions, are capable of managing the number of restaurants in our current growth plan with limited additional hires.
From high quality food vendors to technology and maintenance vendors, we believe that we have developed long term relationships with a highly sophisticated team of vendors capable of effectively servicing our needs as we execute our growth plan. The quality and depth of both our vendor relationships and our shared services have resulted in a scalable platform with the bench strength to support our planned growth with limited adjustments.
123
Experienced Management Team
We are led by a management team with significant experience in all aspects of restaurant operations. Our experienced team of industry veterans at the executive level has an average of 30 years of restaurant experience and our 41 general managers, as of May, 2015, have an average tenure at J. Alexanders, Redlands Grill and Stoney River of approximately 9.9 years, 8.5 years and 5.9 years, respectively. Despite a difficult economic environment, this management team has achieved 21 consecutive fiscal quarters of same store sales growth, has improved our financial performance, integrated the Stoney River operations, restarted development efforts, and launched Redlands Grill.
In addition, pursuant to the Management Consulting Agreement, we will continue to be able to leverage key management resources of FNFV which have contributed significantly to our growth and financial performance since we were acquired by FNF in 2012.
Our Growth Strategies
We believe there are significant opportunities to grow our business, strengthen our competitive position and enhance our concepts through the implementation of the following strategies:
Deliver Consistent Same Store Sales
We believe that we will be able to continue to generate same store sales growth by consistently providing an attractive price/value proposition for our guests through excellent service in an upscale environment. We remain focused on delivering freshly prepared, contemporary American cuisine to our guests, with exceptional quality and service for the price. Though the core menu at each concept will remain unchanged, we will continue to explore potential additions as well as limited-time featured food and drink offerings that are rotated on a weekly basis. As a result, we are able to adapt to changing consumer tastes and incorporate local offerings to reinforce our boutique restaurant feel. We continue to explore ways to increase the number of occasions and flexibility of dining options for our guests, and most recently have begun to test Sunday brunch items at select J. Alexanders restaurants.
We have a program of continuous investment in all of our locations to maintain our store images at the highest level, and target spending $75,000 to $100,000 per year in maintenance capital expenditures per restaurant to do so. We may also selectively undertake more extensive remodels of existing units to improve back of the house efficiencies and the front of the house experience, or relocations in the event of demographic shifts in a market. We believe our investment in remodeling and relocation will generate incremental comparable sales at affected restaurants.
Pursue Disciplined New Restaurant Growth in Target Markets
We believe each of our concepts has significant growth potential and we are in the early stages of our growth story. Historically, we have focused on organic rather than new restaurant growth but in 2012 began to establish a new restaurant development pipeline. We believe there are significant opportunities to grow our concepts on a nationwide basis in both existing and new markets where we believe we can generate attractive unit economics.
We are constantly evaluating potential sites for new restaurant openings and currently have approximately 30 locations in approximately 20 separate markets under various stages of review and development. We believe that having a large number of sites under review at any one time is necessary in order to meet our development goals. In our experience, sites under analysis often will not result in a new restaurant location for any number of reasons, including the delay or cancelation of
124
larger development projects on which a future restaurant may depend, the loss of potential site locations to competitors, or our ultimate determination that a site under review is not appropriate for one of our concepts. We believe that the number of available and potential sites under review by us, the anticipated costs of opening a new restaurant location, and our current capital resources will support four to five new store openings annually starting in 2016. However, our ability to open any particular number of restaurants in any calendar year is dependent upon many factors, risks and uncertainties beyond our control as discussed more fully elsewhere in this information statement under the heading Risk FactorsRisks Related to Our Business.
We expect that the development of our Redlands Grill concept will further accelerate growth by allowing us to expand into certain markets which may currently have a J. Alexanders and/or Stoney River restaurant that might not otherwise have been considered viable for expansion opportunities. Assuming the initial transitions of certain J. Alexanders are successfully completed, management anticipates a total of 12 to 15 Redlands Grill locations will be operational by the end of fiscal 2015.
Improve Margins and Leverage Infrastructure
We believe that our corporate infrastructure can support a restaurant base greater than our existing footprint. As we continue to grow, we expect to drive greater efficiencies in our supply chain and leverage our technology and existing support infrastructure. We will continue to optimize restaurant operating costs at existing Stoney River restaurants as we continue to implement our best practices at those locations. As we grow our restaurant base, we expect to leverage our corporate infrastructure to enhance margins as general and administrative expenses grow at a slower rate than our restaurant base and revenues.
125
Properties
As of March 29, 2015, we operate 29 J. Alexanders restaurants, two Redlands Grill restaurants, and 10 Stoney River restaurants. The following table gives the locations of, and describes our interest in, the land and buildings used in connection with our restaurants:
Site and
Building Owned by the Company |
Site Leased and
Building Owned by the Company |
Site Leased to
the Company |
Total | |||||||||||||||||||||||||||||||||||||
Location |
JAX |
SR |
RG |
JAX |
SR |
RG |
JAX |
SR |
RG |
|||||||||||||||||||||||||||||||
Alabama |
1 | 1 | ||||||||||||||||||||||||||||||||||||||
Colorado |
1 | 1 | ||||||||||||||||||||||||||||||||||||||
Florida |
2 | 4 | 6 | |||||||||||||||||||||||||||||||||||||
Georgia |
1 | 1 | 1 | 1 | 1 | 5 | ||||||||||||||||||||||||||||||||||
Illinois |
2 | 1 | 3 | |||||||||||||||||||||||||||||||||||||
Kansas |
1 | 1 | ||||||||||||||||||||||||||||||||||||||
Kentucky |
1 | 1 | 2 | |||||||||||||||||||||||||||||||||||||
Louisiana |
1 | 1 | ||||||||||||||||||||||||||||||||||||||
Maryland |
2 | 2 | ||||||||||||||||||||||||||||||||||||||
Michigan |
1 | 1 | 1 | 3 | ||||||||||||||||||||||||||||||||||||
Missouri |
1 | 1 | ||||||||||||||||||||||||||||||||||||||
Ohio |
3 | 3 | 6 | |||||||||||||||||||||||||||||||||||||
Tennessee |
3 | 1 | 1 | 1 | 1 | 7 | ||||||||||||||||||||||||||||||||||
Texas |
1 | 1 | 2 | |||||||||||||||||||||||||||||||||||||
Total |
14 | 3 | 1 | 12 | 3 | 0 | 3 | 4 | 1 | 41 |
JAX = J. Alexanders restaurants
SR = Stoney River restaurants
RG = Redlands Grill restaurants
126
National Restaurant Location Distribution
Most of our restaurant lease agreements may be renewed at the end of the initial term (generally 15 to 20 years) for periods of five or more years. Certain of these leases provide for minimum rentals plus additional rent based on a percentage of the restaurants gross sales in excess of specified amounts. These leases usually require us to pay all real estate taxes, insurance premiums and maintenance expenses with respect to the leased premises.
Our corporate offices are located in leased office space in Nashville, Tennessee. In addition to the properties listed in the table above, we remain party to two additional leases for closed locations, one of which we have subleased to a third party through the term of the original lease.
Certain of our owned restaurants are mortgaged as security for our credit facility. See Note 10, Debt, to the Consolidated Financial Statements.
Restaurant Design and Site Selection Process
Site Selection
We have developed a targeted site acquisition and qualification process incorporating managements experience as well as extensive data collection, analysis and interpretation. We are actively developing restaurants in both new and existing markets, and we will continue to expand in selected regions throughout the U.S. We identify and work with a local broker to conduct preliminary research regarding potential markets and locations. The preliminary research includes an analysis of
127
traffic patterns, parking, access, demographic characteristics, population density, level of affluence, consumer attitudes or preferences and current or expected co-retail and restaurant tenants. The brokers then present potential sites to our real estate department. If our financial criteria for the site are satisfied, our Chief Executive Officer and Chief Operating Officer visit the site and, subject to board approval, our management negotiates the lease.
For each of our concepts, our key site criteria is that the population within a five mile radius has a high concentration of our targeted guest, which includes individuals in the upper income demographic of major metropolitan areas that dine out frequently. In addition, we target high concentrations of retail and upscale office developments to support our lunch offering at J. Alexanders and Redlands Grill and, in certain situations, at our Stoney River restaurants. We also prefer locations with high visibility and ample parking spaces. To the extent that the majority of our Stoney River restaurants offer dinner only, the population of sites that satisfy our selection criteria will be broader relative to this concept than the population that satisfies our criteria for a new J. Alexanders or Redlands Grill.
Restaurant Design
We do not have a standard prototype for each concept with respect to size, location or layout, which enables us to be flexible in our real estate selection process. This allows us to use a combination of new builds and conversions for our new locations. Our restaurants are generally free-standing structures using a variety of interior and exterior finishes and materials which have been developed to allow each location a unique design with a common look and feel within each concept. Each location has been designed to provide a high level of curb appeal as well as a comfortable dining experience. While our restaurants are individually designed to create an unchained feel, all locations benefit from a focus on a contemporary and comfortable aesthetic that we believe compliments our food and creates a consistent dining experience across all of our concepts. This flexibility in design has allowed us to utilize a variety of locations and spaces, making the best use of the real estate available.
Many of our J. Alexanders and Redlands Grill building designs utilize craftsman-style architecture, featuring natural materials such as stone, wood and weathered copper. Others reflect a blend of international and craftsman architecture featuring elements such as steel, concrete, stone and glass, subtly incorporated to give a contemporary feel. Several of our restaurants also feature a patio complemented by an exposed fire pit. J. Alexanders and Redlands Grill locations typically contain approximately 6,900 to 9,000 square feet with seating for an average of approximately 220 guests. For J. Alexanders and Redlands Grill locations, we estimate that a new build, excluding land, will require a total cash investment of $4,500,000 to $5,500,000 (excluding any tenant incentives).
Stoney River locations typically contain approximately 6,400 to 8,000 square feet with seating for an average of approximately 260 guests. Most of our Stoney River locations include private dining spaces, which represented 7.4% of sales at Stoney River in 2014. For Stoney River locations we estimate that each new build will require a total cash investment of $3,500,000 to $4,500,000 (excluding any tenant incentives).
The flexibility of our concepts has enabled us to open restaurants in a wide variety of locations, including high-density residential areas and near shopping malls, lifestyle centers and other high-traffic locations. On average, it takes us approximately 12 to 18 months from identification of the specific site to opening the doors for business. In order to maintain consistency of food and customer service as well as the unique atmosphere at our restaurants, we have set processes and timelines to follow for all restaurant openings.
128
Hiring and Training
We are highly focused on providing an unparalleled experience to our guests. Achieving this experience is intricately tied to careful hiring, thorough training and an apprenticeship for management trainees that provides intimate knowledge of every facet of our restaurants. We have implemented a sophisticated and stringent hiring and training program. Maintaining the uniqueness of culture, with our focus on quality and training, starts with hiring. Excluding the needs of new restaurants, we hire approximately 60 to 75 new management trainees annually. With new locations, we believe this number will increase to approximately 90 to 95 per year. We focus our recruiting efforts on approximately fifteen of the best culinary programs in the country where we believe our long relationships with the schools enable us to identify and recruit the most promising students. These graduates typically spend three to five years at J. Alexanders before they are promoted to a department responsibility or a general manager role. During that time they experience every job in the restaurant. Because of our focus on quality and training, we have traditionally found that some of our most successful managers have been hired from within.
Every employee, regardless of previous experience, goes through a thirteen week training program at the beginning of their employment. Certain positions start the on the job portion of their training during that thirteen week training period, also working shifts in their designated job as they complete the training program. Since FNH transferred the Stoney River Assets to us, our hiring and training practices have been rolled out across all of the Stoney River restaurants.
Suppliers
To ensure that we can maintain consistent price and quality throughout our restaurants, we use centralized contracts with a network of third-party vendors, suppliers and distributors to provide our required items. We provide each vendor with a strict set of specifications to ensure that our food quality is maintained at the highest level. Where possible, we may also take advantage of local farms or purveyors to provide in-season products to supplement our regular menu with recipes featuring high quality local or farm-to-table products. When prices rise on any of our commodities, we work with our menu development team to create new and unique menu additions that can make the most efficient use of the products we have purchased or to improve the food margin of products on the menu.
Beef is the largest percentage of our food costs, representing approximately 31.7% of total food and beverage costs in 2014. We purchase our beef directly from the producers, rather than through a distributor or third party supplier. We believe that direct relationships with these vendors provide us cost and flexibility advantages that may not be available from third party distributors. We have purchased beef from our current beef supplier for multiple consecutive years and anticipate this will continue for the foreseeable future. We do not hedge our beef purchases, and instead rely on our direct purchases and menu innovation to offset potential price increases.
While most of our current supply contracts are for no longer than one year, we have been purchasing from many of our suppliers for many years and believe that our relationships are strong, and their financial position secure. However, we believe that we do not rely on any single-source supplier that could not be replaced with one or more alternative suppliers without disruption. Should there be any disruption in our supply chain, we believe we have created a set of product specifications that can be met by a number of common restaurant suppliers.
129
Seasonality
Our net sales and net income have historically been subject to seasonal fluctuations. Net sales and operating income typically reach their highest levels during the fourth quarter of the fiscal year due to holiday business and the first quarter of the fiscal year due in part to the redemption of gift cards sold during the holiday season. In addition, certain of our restaurants, particularly those located in south Florida, typically experience an increase in customer traffic during the period between Thanksgiving and Easter due to an increase in population in these markets during that portion of the year. Certain of our restaurants are located in areas subject to hurricanes and tropical storms, which typically occur during our third and fourth quarters, and which can negatively affect our net sales and operating results. As a result of these and other factors, our financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year.
Intellectual Property and Trademarks
We own a number of trademarks and service marks registered with the PTO. We have registered the following marks with the PTO, among others: J. Alexanders Restaurant, Redlands Grill, Black River Angus Beef, Black River Premium Beef, Legendary Steaks, Stoney River, Stoney River Legendary Steaks, and Stoney River Legendary Filet. In addition, we have also registered the Internet domain names www.jalexanders.com, www.jalexandersholdings.com, www.redlandsgrill.com, and www.stoneyriver.com, among others, and have registered certain copyrights with the U.S. Copyright Office, including copyrights with respect to the J. Alexanders menu and the J. Alexanders cocktail menu.
We believe that our trademarks, service marks and other intellectual property rights have significant value and are important to the marketing of our concepts, and it is our policy to protect and defend vigorously our rights to such intellectual property. However, we cannot predict whether steps taken to protect such rights will be adequate. See Risk FactorsRisks Related to Our BusinessThe failure to enforce and maintain our intellectual property rights could enable others to use names confusingly similar to the names and marks used by our restaurants, which could adversely affect the value of our concepts.
Regulatory, Environmental, Health and Safety Matters
Environmental
We are subject to federal, state and local environmental laws and regulations concerning waste disposal, pollution, protection of the environment, and the presence, discharge, storage, handling, release and disposal of, or exposure to, hazardous or toxic substances (environmental laws). These environmental laws can provide for significant fines and penalties for non-compliance and liabilities for remediation, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of the hazardous or toxic substances. Third-parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such substances. We are not aware of any environmental laws that will materially affect our earnings or competitive position, or result in material capital expenditures relating to our restaurants. However, we cannot predict what environmental laws will be enacted in the future, how existing or future environmental laws will be administered, interpreted or enforced, or the amount of future expenditures that we may need to make to comply with, or to satisfy claims relating to, environmental laws. It is possible that we will become subject to environmental liabilities at our properties, and any such liabilities could materially affect our business, financial condition or results of operations. See Risk FactorsRisks Related to Our BusinessCompliance with environmental laws may negatively affect our business.
130
Health and Safety
We are subject to extensive and varied federal, state and local government regulation, including regulations relating to the sale of food and alcoholic beverage, public and occupational health and safety, sanitation and fire prevention. We operate each of our restaurants in accordance with standards and procedures designed to comply with applicable codes and regulations. However, an inability to obtain or retain health department or other licenses would adversely affect our operations. Although we have not experienced, and do not anticipate, any significant difficulties, delays or failures in obtaining required licenses, permits or approvals, any such problem could delay or prevent the opening of, or adversely impact the viability of, a particular restaurant or group of restaurants.
In addition, in order to develop and construct restaurants, we must comply with applicable zoning, land use and environmental regulations. Such regulations have not had a material effect on our operations to date, but more stringent and varied requirements of local governmental bodies could delay or even prevent construction and increase development costs for new restaurants. We are also required to comply with the accessibility standards mandated by the ADA, which generally prohibits discrimination in accommodation or employment based on disability. The ADA became effective as to public accommodations and employment in 1992. Construction and remodeling projects completed by us at J. Alexanders since January 1992 and Stoney River since March 2013 have taken into account the requirements of the ADA. We may in the future have to modify restaurants, by adding access ramps or redesigning certain architectural fixtures for example, to provide service to or make reasonable accommodations for disabled persons. While these expenses could be material, our current expectation is that any such actions will not require substantial capital expenditures.
A significant amount of our revenues is attributable to the sale of alcoholic beverages. Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license that must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of daily operations of our restaurants, including the minimum age of patrons and employees, hours of operation, advertising, trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors, inventory control and handling, storage and dispensing of alcoholic beverages. We are also subject in certain states to dram shop statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Of the 14 states where we operate, most have dram-shop statutes or recognize a cause of action for damages relating to sales of alcoholic beverages to obviously intoxicated persons and/or minors. We carry liquor liability coverage as part of our existing comprehensive general liability insurance.
In addition, we are subject to the U.S. Fair Labor Standards Act, the U.S. Immigration Reform and Control Act of 1986, the Occupational Safety and Health Act and various other federal and state laws governing similar matters including minimum wages, overtime, workplace safety and other working conditions. We may also be subject to lawsuits from our employees, the U.S. Equal Employment Opportunity Commission or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters, and we have been party to such matters in the past. See Risk FactorsRisks Related to Our BusinessGovernmental regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our business, financial condition and results of operations.
PPACA, enacted in March 2010, requires chain restaurants with 20 or more locations in the United States operating under the same name and offering substantially the same menus to publish the total number of calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the context of a total daily calorie intake. A number of
131
states, counties and cities have also enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information to customers, or have enacted legislation restricting the use of certain types of ingredients in restaurants. Many of these requirements are inconsistent or are interpreted differently from one jurisdiction to another. While our ability to adapt to consumer preferences is a strength of our concepts, the effect of such labeling requirements on consumer choices, if any, is unclear at this time. See Risk FactorsRisks Related to Our BusinessLegislation and regulations requiring the display and provision of nutritional information for our menu offerings and new information or attitudes regarding diet and health could result in changes in consumer consumption habits that could adversely affect our results of operations.
There is also a potential for increased regulation of certain food establishments in the United States, where compliance with Hazard Analysis & Critical Control Points (HACCP) management systems may now be required. HACCP refers to a management system in which food safety is addressed through the analysis and control of potential hazards from raw material production, procurement and handling, to manufacturing, distribution and consumption of the finished product. Many states have required restaurants to develop and implement HACCP programs and the United States government continues to expand the sectors of the food industry that must adopt and implement HACCP programs. For example, the Food Safety Modernization Act, signed into law in January 2011, granted the FDA new authority regarding the safety of the entire food system, including through increased inspections and mandatory food recalls. We anticipate that the new requirements may impact our industry. Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability of certain products, result in adverse publicity or require us to take actions that could be costly for us or otherwise harm our business. See Risk FactorsRisks Related to Our BusinessGovernmental regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our business, financial condition and results of operations.
We are also subject to laws and regulations relating to information security, privacy, cashless payments, gift cards and consumer credit protection and fraud, and any failure or perceived failure to comply with these laws and regulations could harm our reputation or lead to litigation, which could adversely affect our financial condition.
Information Technology
All of our restaurants use computerized point of sale systems created by Micros Systems, which we believe are scalable to support our future growth plans. We utilize a Windows-based accounting software package and a network that enables electronic communication throughout the Company. In addition, all of our restaurants utilize touch screen point-of-sale and electronic gift card systems, and also employ a theoretical food costing program, all of which were specifically designed for the restaurant industry. We use our management information systems to develop pricing strategies, identify food cost issues, monitor new product acceptance and evaluate restaurant-level productivity. The system also supplies sales, bank deposit and variance data to our accounting department on a daily basis. We use this data to generate daily sales information and weekly consolidated reports regarding sales and other key measures, as well as preliminary weekly detailed profit and loss statements for each location with final reports following the end of each period. We expect to continue to develop our management information systems to assist management in analyzing business issues and to improve efficiency.
Employee Matters
As of March 29, 2015, we employed approximately 3,500 persons, including 41 on the corporate staff. We believe that our employee relations are good. We are not a party to any collective bargaining agreements.
132
Legal Proceedings
We are a defendant from time to time in various claims or legal proceedings arising in the ordinary course of our business, including claims relating to injury or wrongful death under dram shop laws, labor-related claims, workers compensation matters, discrimination and similar matters, claims resulting from slip and fall accidents, claims relating to lease and contractual obligations, federal and state tax matters and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns. We do not believe that any of the legal proceedings pending against us as of the date of this information statement will have a material adverse effect on our liquidity or financial condition. We may incur liabilities, receive benefits, settle disputes, sustain judgments or accrue expenses relating to legal proceedings in a particular fiscal year which may adversely affect our results of operations, or on occasion, receive settlements that favorably affect our results of operations.
133
Directors and Executive Officers
The following table sets forth certain information regarding the current members of our board of directors, our director nominees and executive officers.
Name | Age | Position | ||||
Lonnie J. Stout II |
68 | President and Chief Executive Officer and Director | ||||
Mark A. Parkey |
52 | Vice President, Chief Financial Officer and Treasurer | ||||
J. Michael Moore |
55 | Vice President and Chief Operating Officer | ||||
Brent B. Bickett |
50 | Director | ||||
William P. Foley, II |
69 | Director | ||||
Timothy T. Janszen |
51 | Director | ||||
Frank R. Martire |
66 | Director | ||||
Ronald B. Maggard, Sr. |
64 | Director |
Lonnie J. Stout II |
Mr. Stout has been a director and President and Chief Executive Officer of
|
|
Mark A. Parkey |
Mr. Parkey has served as Vice President, Chief Financial Officer and Treasurer of the issuer since its formation. He has held the same positions at J. Alexanders Holdings, LLC and J. Alexanders, LLC since May 2013. Prior to becoming the Chief Financial Officer, Mr. Parkey served as Vice President of JAC from May 1999 to October 2012, Controller of JAC from May 1997 to October 2012, Vice President and Controller of J. Alexanders Holdings, LLC and J. Alexanders, LLC from October 2012 until August 2013 and as the Director of Finance of JAC from January 1993 to May 1997. He is a certified public accountant, inactive, as well as a Chartered Global Management Accountant and a graduate of Harding University. His previous experience includes positions as audit manager with the accounting firms Ernst & Young LLP and Steele Martin Jones & Company, PLC (formerly Steele Carter and Martin). |
|
J. Michael Moore |
Mr. Moore has served as Vice President and Chief Operating Officer of the
|
134
Chief Operating Officer, Mr. Moore served as Vice President of Human
|
||
Brent B. Bickett |
Mr. Bickett has served as President of FNF since December 2013. Previously, Mr. Bickett served as Executive Vice President, Corporate Finance of FNF from 2003 to December 2013. He joined FNF in 1999 as a Senior Vice President, Corporate Finance, and has served as an executive officer of FNF since that time. Mr. Bickett also serves on the board of directors and compensation committee of Remy International, Inc. In addition, Mr. Bickett served as Corporate Executive Vice President, Corporate Finance of Fidelity National Information Services, Inc. from 2006 through June 30, 2012. Since January 1999, Mr. Bickett has had primary responsibility for all merger and acquisition related activities, strategic investments and financing activities for FNF and its operating subsidiaries. Mr. Bickett has been a director of the issuer since its formation. Additionally, Mr. Bickett has served on the board of managers of the Operating LLC and J. Alexanders, LLC since February 2013 and January 2013, respectively. Mr. Bicketts sophisticated financial experience and executive management skills gained through his experience in senior financial and management roles within FNF and its affiliated companies make him an important contributor to our board of directors. |
|
William P. Foley, II |
[To Come] |
|
Timothy T. Janszen |
Mr. Janszen has been the Chief Executive Officer of Newport Global Advisors
|
135
Frank R. Martire |
[To Come]
|
|
Ronald B. Maggard, Sr. |
[To Come]
|
Overview of our Board Structure
Our amended and restated charter provides that our board of directors will consist of between three and 15 directors. The exact number of directors will be fixed from time to time by a majority of our board of directors. Initially, our board of directors will have members. In accordance with our amended and restated charter, our board of directors will be divided into three classes of directors, designated Class I, Class II and Class III, each class with overlapping three-year terms. Each class will constitute, as nearly as possible, one-third of the total number of directors.
In accordance with our amended and restated charter, one class of directors will be elected at each annual meeting of shareholders to serve for a three-year term. However, because we will be a newly established public company, the term of the initial Class I directors will terminate on the date of the 2016 annual meeting of shareholders; the term of the initial Class II directors will terminate on the date of the 2017 annual meeting of shareholders, and the term of the initial Class III directors will terminate on the date of the 2018 annual meeting of shareholders. At each annual meeting of shareholders beginning in 2016, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term. As a result, approximately one-third of our board of directors will be elected each year. There will be no limit on the number of terms a director may serve on our board of directors.
Neither FNF nor Newport, nor any other person or shareholder, will have contractual rights to designate nominees for election to our board of directors. Nominees to our board of directors will be designated and elected in accordance with our amended and restated bylaws and our amended and restated charter. We will establish a standing nominating committee which will be responsible for evaluating and recommending director nominees for election to our board of directors.
136
Our amended and restated charter provides that, subject to any rights of any voting group established pursuant to our amended and restated bylaws or any applicable shareholders agreement, any director may be removed from office at any time but only for cause and only by (i) the affirmative vote of the holders of 66 2/3% of the voting power of the shares entitled to vote for the election of directors, considered for this purpose as one class or (ii) the affirmative vote of a majority of the entire board of directors then in office. In addition, our amended and restated charter will provide that any vacancy on the board of directors, including a vacancy that results from an increase in the number of directors or a vacancy that results from the removal of a director with cause, may be filled only by a majority of the directors then in office.
Role of the Board in Risk Oversight
One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors will administer this oversight function directly, with support from its two standing committees, the audit committee and the compensation committee, each of which addresses risks specific to its respective areas of oversight. In particular, our audit committee will have the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The audit committee also will monitor compliance with legal and regulatory requirements. Our compensation committee will assess and monitor whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. Our nominating and corporate governance committee will monitor the effectiveness of our corporate governance guidelines, including whether they are successful in preventing illegal or improper liability-creating conduct.
Independent Directors
Our Corporate Governance Guidelines will provide that following any phase-in period permitted under the NYSE listing standards, our board of directors will consist of a majority of independent directors. We expect that upon completion of the distribution, Timothy Janszen, Frank R. Martire and Ronald B. Maggard, Sr. will be independent, non-management directors who meet the criteria for independence required by the applicable NYSE and SEC rules. Our board of directors will evaluate our relationships of each director and nominee and makes a recommendation to our board of directors as to whether to make an affirmative determination that such director or nominee is independent. Under our Corporate Governance Guidelines, an independent director will be one who meets the qualification requirements for being independent under applicable laws and the corporate governance listing standards of the NYSE.
Our board of directors will evaluate the independence of directors and director nominees under the criteria established by the NYSE for director independence and for audit committee membership.
Board Committees
Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Each committee operates under a charter approved by our board of directors. Copies of each committees charter are posted on the Corporate Governance section of our website, www.jalexandersholdings.com.
137
Audit Committee.
Our Audit Committee following the distribution will consist of [ ] (Chair) [ ], all of whom satisfy the independence, financial literacy, experience and expertise requirements of our Corporate Governance Guidelines, Section 10A-3 of the Exchange Act, the applicable NYSE listing standards and any other applicable regulatory requirements currently in effect. In addition, we have determined that [ ] qualifies as an audit committee financial expert as such term is defined under the rules and regulations of the SEC. The functions of this committee will include, among other things:
|
evaluating the performance, independence and qualifications of our independent auditors and determining whether to retain our existing independent auditors or engage new independent auditors; |
|
reviewing and approving the engagement of our independent auditors to perform audit services and any permissible non-audit services; |
|
reviewing our annual and quarterly financial statements and reports and discussing the statements and reports with our independent auditors and management; |
|
reviewing with our independent auditors and management significant issues that arise regarding accounting principles and financial statement presentation, and matters concerning the scope, adequacy and effectiveness of our financial controls; |
|
reviewing with management and our auditors any earnings announcements and other public announcements regarding material developments; |
|
establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and other matters; |
|
preparing the report of the audit committee that the SEC requires in our annual proxy statement; |
|
overseeing risks associated with financial matters such as accounting, internal controls over financial reporting and financial policies; |
|
reviewing and providing oversight with respect to any related party transactions and monitoring compliance with our code of ethics; and |
|
reviewing and evaluating, at least annually, the performance of the audit committee, including compliance of the audit committee with its charter. |
Following the distribution, both our independent registered public accounting firm and management personnel will periodically meet privately with our audit committee.
138
Compensation Committee.
Our Compensation Committee following the distribution will consist of [ ] (Chair) [ ], all of whom satisfy the independence requirements of our Corporate Governance Guidelines, the applicable NYSE listing standards and any other applicable regulatory requirements currently in effect. The functions of our compensation committee will include, among other things:
|
reviewing and recommending to our board of directors the compensation and other terms of employment of our executive officers; |
|
reviewing and recommending to our board of directors performance goals and objectives relevant to the compensation of our executive officers; |
|
evaluating and approving the equity incentive plans, compensation plans and similar programs advisable for us, as well as modification or termination of existing plans and programs; |
|
evaluating and recommending to our board of directors the type and amount of compensation to be paid or awarded to Board members; |
|
administering our equity incentive plans; |
|
reviewing and recommending to our board of directors policies with respect to incentive compensation and equity compensation arrangements; |
|
reviewing the competitiveness of our executive compensation programs and evaluating the effectiveness of our compensation policy and strategy in achieving expected benefits to us; |
|
evaluating and overseeing risks associated with compensation policies and practices; |
|
reviewing and recommending to our board of directors the terms of any employment agreements, severance arrangements, change in control protections and any other compensatory arrangements for our executive officers and other members of senior management; |
|
preparing the report of the compensation committee that the SEC requires in our annual proxy statement; |
|
reviewing the adequacy of its charter on an annual basis; and |
|
reviewing and evaluating, at least annually, the performance of the compensation committee, including compliance of the compensation committee with its charter. |
139
Nominating and Corporate Governance Committee
Our Nominating and Governance Committee following the distribution will consist of [ ] (Chair), [ ], all of whom satisfy the independence requirements of our Corporate Governance Guidelines, the applicable NYSE listing standards and any other applicable regulatory requirements currently in effect. Nominating functions to be exercised by our board of directors will include, among other things:
|
identify, review and evaluate candidates to serve on our board of directors; |
|
determine the minimum qualifications for service on our board of directors; |
|
evaluate director performance on our board of directors and applicable committees of our board of directors; |
|
evaluate, nominate and recommend individuals for membership on our board of directors; and |
|
consider nominations by shareholders of candidates for election to our board of directors. |
Corporate governance functions to be exercised by our board of directors will include, among other things:
|
consider and assess the independence of members of our board of directors; |
|
develop, as appropriate, a set of corporate governance principles, and review and make any changes to such principles; |
|
periodically review our policy statements; and |
|
evaluate, at least annually, the performance of its committees. |
Compensation Committee Interlocks and Insider Participation
None of our executive officers have served as a member of the board of directors or compensation committee of any related entity that has one or more executive officers serving on our board of directors or compensation committee.
Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics that will apply to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. A copy of the code will be posted on our corporate website, at www.jalexandersholdings.com. Any amendments to our code of conduct will be disclosed on our Internet website promptly following the date of such amendment or waiver.
140
EXECUTIVE COMPENSATION
As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to a smaller reporting company as such term is defined in the rules promulgated under the Securities Act, which require compensation disclosure for our Chief Executive Officer and the two most highly compensated executive officers other than our Chief Executive Officer, whom we collectively refer to as the named executive officers in this information statement.
Summary Compensation Table
The following table sets forth certain summary information for the year indicated with respect to the compensation awarded to, earned by, or paid to the named executive officers for 2014 and 2013 in their capacity as employees and officers of our subsidiaries.
Name and Principal Position |
Fiscal
Year |
Salary ($)(1) |
Non-Equity
Incentive Plan Compensation on ($)(2) |
All Other
Compensation on ($)(3)(4) |
Total
($) |
|||||||||||||||
Lonnie J. Stout II |
2014 | 485,217 | 792,464 | 112,841 | 1,390,522 | |||||||||||||||
President, Chief Executive |
2013 | 430,400 | 253,149 | 29,846 | 713,395 | |||||||||||||||
Officer and Director |
||||||||||||||||||||
Mark A. Parkey |
2014 | 203,667 | 166,316 | 172,743 | 542,726 | |||||||||||||||
Vice President and Chief |
2013 | 188,350 | 73,504 | 253,678 | 515,532 | |||||||||||||||
Financial Officer |
||||||||||||||||||||
J. Michael Moore |
2014 | 203,667 | 166,316 | 153,050 | 523,033 | |||||||||||||||
Vice President and Chief |
2013 | 197,311 | 76,914 | 215,032 | 489,257 | |||||||||||||||
Operating Officer |
(1) |
Amounts shown are not reduced to reflect the named executive officers contributions to our 401(k) and deferred compensation plans. Amounts shown are amounts actually earned by the named executive officer during the year. Amounts reflect raises effective in mid-year 2013 and 2014. |
(2) |
Amounts shown reflect the amounts earned by the named executive officers pursuant to the Bonus Plan (as defined below) for 2014 and 2013. |
(3) |
Amounts shown reflect the value to each of the named executive officers of: the expense recognized by us relating to the vested benefit under their Amended and Restated Salary Continuation Agreements; contributions allocated by us pursuant to our 401(k) plan; auto allowance; reimbursements for certain auto-related expenses; our reimbursement of employee medical insurance contributions; payments received under a supplemental medical reimbursement insurance plan; payments of supplemental disability insurance premiums; and certain other benefits that vary by the named executive officer, including group life insurance premiums, tax preparation and planning services, a health club membership stipend and the limited use of Company-owned tickets to Tennessee Titans games. |
141
(4) |
The following table details for each named executive officer the expense recognized by us over the 2014 and 2013 fiscal years relating to the named executive officers vested Amended and Restated Salary Continuation Agreement benefits. No amounts were actually paid to the employee. |
Named Executive Officer |
Non-
Cash Expense Recognized Relating to the Vested Benefit Under the Amended and Restated Salary Continuation Agreements |
|||||||||
2013 | 2014 | |||||||||
Lonnie J. Stout II |
(a) | $ | 88,617 | |||||||
Mark A. Parkey |
$ | 222,918 | $ | 139,856 | ||||||
J. Michael Moore |
$ | 184,361 | $ | 127,903 |
(a) |
As a result of forecasted interest rates for the 15-year period during which Mr. Stout is eligible to receive his vested benefit, we recognized income for the 2013 fiscal year relating to our obligations with respect to Mr. Stouts Amended and Restated Salary Continuation Agreement. Consequently, no amount of expense is reported in the All Other Compensation column of the Summary Compensation Table with respect to Mr. Stouts Amended and Restated Salary Continuation Agreement. |
Narrative Disclosure to Summary Compensation Table
Compensation Philosophy . The executive compensation program, which has been administered by J. Alexanders Holdings, LLCs board of managers, and following the distribution, will be administered by the compensation committee of our board of directors, compensates management primarily through a combination of base salary and annual cash incentives. The goal of the executive compensation program is to attract and retain talent through incentives that reward outstanding Company and individual performance and the creation of shareholder value. Base salaries are intended to provide cash compensation at a level appropriate for the named executive officers experience and responsibilities. Our incentive compensation, which for both 2013 and 2014 took the form of a cash incentive program, is designed to align a portion of the management incentives with the interests of our equity holders.
Base Salary . Base salaries are reviewed annually and may be adjusted in light of individual past performance, tenure, any change in the named executive officers position or responsibilities within our organization, or rates of inflation. We review the base salary of the Chief Executive Officer and receive recommendations from the Chief Executive Officer regarding base salaries for the other named executive officers. Base salaries of the named executive officers commencing July 1, 2014 are listed in the table below.
Named Executive
Officer |
2014 Base Salary(1) | |||||
Lonnie J. Stout II |
$ | 550,000 | ||||
Mark A. Parkey |
$ | 208,000 | ||||
J. Michael Moore |
$ | 208,000 |
(1) |
Effective July 1, 2014, the salaries of the named executive officers were increased to reflect favorable executive performance and customary annual raises and, in the case of Mr. Stout, an increase to reflect his performance and his increased responsibilities. |
Cash-Based Incentive Compensation . Part of our compensation philosophy is to incentivize the named executive officers using cash-based incentive compensation tied primarily to our business objectives. We approve the payment of annual cash incentive compensation, if earned, because we believe they reward executives for achieving our shorter-term business objectives.
142
In 2014, all named executive officers participated in our cash incentive bonus plan (the Bonus Plan) under which they were eligible to receive a cash payment based on the achievement of certain performance targets. Performance targets are set annually by the board of directors and communicated to participants. The amount of the cash payment is a percentage of the officers annual base salary earned by the officer during the applicable fiscal year. Each participant in the Bonus Plan is assigned an annual award target expressed as a percentage of the participants base salary earned during the applicable fiscal year. This annual award target is generally determined based on seniority, level of responsibility within our organization, and such persons ability to influence profitability, meet our stated objectives of operational excellence and ensure the integrity of our financial statements and our reputation in the business community. In addition, our board of directors has the discretionary authority to modify the annual award target based on its assessment of the individual participants performance.
The Bonus Plan is designed to provide 100% of a participants annual award target for achieving targeted performance, 50% of a participants annual award target for achieving a minimum acceptable (threshold) level of performance (typically, 90% of the targeted performance level), and up to a maximum of 200% of a participants annual award target for achieving maximum performance (typically, 120% of the targeted performance level). Payouts between the threshold and maximum amounts are interpolated in 1% increments in relation to the performance level achieved. No payments will be made for performance below the threshold level.
The performance targets for 2013 were calculated based on our achievement of designated levels of earnings before net interest expense, income taxes, depreciation, amortization, any pre-opening expenses, certain impairment charges, if applicable, along with adjustments for other items that do not reflect our performance for a given fiscal year (the Plan Adjusted EBITDA). Plan Adjusted EBITDA for 2013 did not include the operational results of Stoney River, as the Plan Adjusted EBITDA targets were established prior to the transfer by FNH of the Stoney River Assets to us. The table below summarizes the potential cash incentives for each of our named executive officers based on our achievement of the threshold, target and maximum Adjusted Plan EBITDA goals for 2013.
Named Executive Officer |
Threshold Plan
Adjusted EBITDA |
Target Plan Adjusted
EBITDA |
Maximum Plan Adjusted
EBITDA |
|||||
Lonnie J. Stout II |
17.5% of Base Salary | 35% of Base Salary | 70% of Base Salary | |||||
Mark A. Parkey |
12.5% of Base Salary | 25% of Base Salary | 50% of Base Salary | |||||
J. Michael Moore |
12.5% of Base Salary | 25% of Base Salary | 50% of Base Salary |
As a result of our achievement of Plan Adjusted EBITDA between the target and maximum goals, each named executive officer received an award equal to approximately 156% of their targeted award level for 2013, using the interpolation method described above. Consequently, Mr. Stout received a cash award pursuant to the Bonus Plan equal to 54.64% of his base salary earned in 2013 and Messrs. Parkey and Moore each received a cash award pursuant to the Bonus Plan equal to 39.03% of their respective base salaries earned in 2013.
143
The performance targets for 2014 were calculated based on our achievement of Plan Adjusted EBITDA which, for 2014, was based on the performance of both J. Alexanders and Stoney River. The table below summarizes the potential cash incentives for each of our named executive officers based on our achievement of the threshold, target and maximum Plan Adjusted EBITDA goals for 2014.
Named Executive Officer |
Threshold Plan
Adjusted EBITDA |
Target Plan Adjusted
EBITDA |
Maximum Plan Adjusted
EBITDA |
|||||
Lonnie J. Stout II |
50% of Base Salary | 100% of Base Salary | 200% of Base Salary | |||||
Mark A. Parkey |
25% of Base Salary | 50% of Base Salary | 100% of Base Salary | |||||
J. Michael Moore |
25% of Base Salary | 50% of Base Salary | 100% of Base Salary |
As a result of our achievement of Plan Adjusted EBITDA between the target and maximum goals, each named executive officer received an award equal to approximately 163% of their targeted award level for 2014, using the interpolation method described above. Consequently, Mr. Stout received a cash award pursuant to the Bonus Plan equal to 163% of his base salary earned in 2014 and Messrs. Parkey and Moore each received a cash award pursuant to the Bonus Plan equal to 82% of their respective base salaries earned in 2014.
Cash Bonuses . On occasion, we have awarded discretionary cash bonus payments to the named executive officers to reward superior individual performance during a fiscal year. No discretionary cash bonus payments were made during 2013 or 2014.
Special Recognition Bonuses . J. Alexanders Holdings, LLCs board of managers has determined that a special recognition bonus program is appropriate to reward a group of our senior executives and other employees in recognition of their efforts and exceptional contributions to us in connection with the distribution and related transactions. Prior to completion of the distribution, J. Alexanders Holdings, LLCs board of managers will determine the amount of the special recognition bonus to be paid to Mr. Stout, and together with Mr. Stout, the board of managers will determine the bonus payments for other senior executives and other employees. Based on individual contributions in furtherance of the distribution, it is anticipated that Messrs. Stout, Parkey and Moore will receive special recognition bonuses upon completion of the distribution in amounts to be determined in accordance with the preceding sentence.
Profits Interest Incentive Awards. On January 1, 2015, J. Alexanders Holdings, LLC adopted a Management Incentive Plan and issued Class B Units of J. Alexanders Holdings, LLC to each of our named executive officers as well as other members of our management in the amounts set forth below.
Named
Executive Officer |
Class B Units
issued in 2015 |
|||||
Lonnie J. Stout II |
442,500 | |||||
Mark A. Parkey |
132,750 | |||||
J. Michael Moore |
132,750 |
Equity Incentive . On [ ], 2015, our board of directors approved the J. Alexanders Holdings, Inc. 2015 Equity Incentive Plan (the Plan). The Plan provides for the grant of non-statutory or incentive stock options, restricted stock, restricted stock units, and other stock-based awards to the Companys employees, officers, directors or consultants. [ ] shares are reserved for issuance under the Plan. The compensation committee of the board of directors administers the Plan, selects the individuals to whom options will be granted, determines the number of options to be granted, and
144
the term and exercise price of each option. Stock options granted pursuant to the terms of the Plan generally cannot be granted with an exercise price of less than 100% of the fair market value on the date of the grant. The term of the options granted under the Plan cannot be greater than 10 years. As of the date of this information statement, no awards have been issued under the Plan.
Employment Agreements . On December 26, 2008, JAC entered into employment agreements with Messrs. Stout, Parkey and Moore, which were each subsequently amended on July 30, 2012. The agreements provide that each of the named executive officers will continue to serve in their current offices and such other office or offices to which he may be appointed or elected by our board of directors for the term of the agreement. Following the initial three-year term, each agreement has been subject to successive one-year automatic renewals unless either party gives written notice to the other party not less than 90 days prior to the end of the then-current term that it is electing not to extend the agreement. Each agreement provides for the named executive officer to continue to receive his current annual base salary as well as customary benefits, including remuneration pursuant to our cash compensation incentive plans (assuming applicable performance targets are met) or any long-term incentive award plans offered generally to our executives and health insurance. Pursuant to the terms of each agreement, we will also reimburse the named executive officer for all reasonable business expenses incurred by such named executive officer in performance of his duties. Compensation payable under the agreements will be, following the completion of the distribution, subject to annual review by the compensation committee of our board of directors, and may be increased as the compensation committee deems advisable.
Each agreement provides for certain payments upon the termination of the named executive officers employment. Details of these payments and obligations are discussed below under the heading Potential Payments Upon Termination or Change in Control. In addition to these payments, if (i) the named executive officer is terminated other than as a result of death or for cause and (ii) the named executive officer does not obtain substantially similar health insurance coverage as provided for in his employment agreement, then once the period for which we are obligated to provide health insurance coverage under the employment agreement ends, we must use commercially reasonable efforts to make available to the named executive officer health insurance benefits for the named executive officer and his dependents under our then-existing health insurance plan at the named executive officers expense (and at no additional cost to us). Further, pursuant to the terms of each of the agreements, each named executive officer is prohibited from (i) competing with us (A) during the term of his employment and (B) for a period of one year following termination of employment if the named executive officer receives payments under the employment agreements in connection with termination without cause or by the named executive officer for good reason and (ii) soliciting, without our written consent, the services of our executive officers (or otherwise soliciting our executive officers to terminate their employment or agency with us) for a period of one year following termination of employment if the named executive officer receives payments under the employment agreements in connection with termination without cause or by the named executive officer for good reason. The named executive officer is also subject to certain confidentiality and non-disclosure obligations.
Retirement Benefits . We provide a vested salary continuation benefit as the primary retirement benefit for certain senior executives, including our named executive officers. Each named executive officer receives this retirement benefit through Amended and Restated Salary Continuation Agreements between us and such named executive officer. A description of the vested salary continuation benefits provided to each named executive officer under these agreements is described below under Potential Payments upon Termination or Change in Control. In addition, we provide the named executive officers certain other retirement benefits, including participation in our 401(k) plan and a non-qualified deferred compensation plan. Each plan allows the named executive officer to defer a portion of his compensation income on a pre-tax basis through contributions to the plan. We will match 25% of the named executive officers total elective contributions up to 3% of the named
145
executive officers compensation for the plan year (taking into account elective contributions to both plans). Earnings, gains and losses on deferral accounts under the non-qualified deferred compensation plan are determined quarterly and credited to participant accounts based on the gains or losses of hypothetical measurement funds selected by the plans administrative committee. We do not provide above-market or preferential earnings on deferred compensation.
Outstanding Equity Awards at 2014 Fiscal Year-End Table
None of the named executive officers had any outstanding equity awards at the end of fiscal 2014.
Potential Payments Upon Termination or Change in Control
Payments Pursuant to the Employment Agreements . Under each of the employment agreements discussed above under Narrative Disclosure to Summary Compensation Table, if we terminate the employment of the named executive officer with cause, or the named executive officer terminates employment without good reason, we are required to pay the named executive officer his salary, prior year bonus (if any) and benefits, in each case, already earned but unpaid through the date of such termination (the accrued obligations).
If we terminate the employment of Mr. Stout without cause, including non-renewal by us, or if Mr. Stout resigns for good reason, Mr. Stout will receive the accrued obligations and will also be entitled to receive (i) a lump sum cash payment equal to 2.99 times his base salary then in effect, (ii) a lump sum cash payment equal to 2.99 times the greater of (a) the cash bonus paid, or earned but not yet paid, in respect of the previous fiscal year or (b) the average bonus paid, or earned but not yet paid, in respect of the last three fiscal years, and (iii) health insurance benefits substantially commensurate with our standard health insurance benefits for Mr. Stout and his spouse and dependents for a period of up to two years, with such benefits terminating prior to the end of such two-year period if he receives substantially similar coverage and benefits from a subsequent employer. For each of Messrs. Parkey and Moore, the applicable severance amounts payable under their respective employment agreements in the event of a termination of employment by us without cause or a resignation by the named executive officer for good reason include (i) the accrued obligations, (ii) a lump sum cash payment equal to 2.00 times his base salary then in effect, (iii) a lump sum cash payment equal to 2.00 times the greater of (a) the cash bonus paid, or earned but not yet paid, in respect of the previous fiscal year or (b) the average bonus paid, or earned but not yet paid, in respect of the last three fiscal years and (iii) health insurance benefits substantially commensurate with our standard health insurance benefits for the named executive officers and his spouse and dependents for a period of up to two years, with such benefits terminating prior to the end of such two-year period if he receives substantially similar coverage and benefits from a subsequent employer. For Mr. Stout, who is also party to a Severance Benefits Agreement (more fully described below under Payments Made Pursuant to the Severance Benefits Agreement) entitling him to 18 months salary upon termination of employment by us without cause or resignation by him for reason, the applicable severance amounts payable under the employment agreements in the event of termination without cause and for good reason are reduced by amounts actually paid under his Severance Benefits Agreement.
Under the employment agreements, in the event of termination without cause or if the named executive officer resigns for good reason, each within the 36-month period following a change in control, each named executive officer will be entitled to receive the severance payments and benefits described above, however, for Messrs. Moore and Parkey the severance multiple is increased from 2.00 to 2.99 and for each of Messrs. Stout, Moore and Parkey the duration of the health insurance benefits continuation is increased from a period of up to two years to a continuation of up three years.
146
In addition, all unvested equity incentive plan awards held by the named executive officer will vest upon a termination without cause or if the named executive officer resigns for good reason within the 36-month period following a change in control.
Under the employment agreements, we may terminate the employment of the named executive officers with cause upon the occurrence of any of the following events (after we have provided proper notice and given the named executive officer the opportunity to remedy the condition in accordance with the procedures set forth in his respective employment agreement): (i) conviction of a felony or a crime involving misappropriation or embezzlement; (ii) willful and material wrongdoing on the part of the named executive officer, including, but not limited to, acts of dishonesty or fraud, which have a material adverse effect on us or any of our subsidiaries; (iii) repeated material failure of the named executive officer to follow our direction or the direction of our board of directors regarding the material duties of employment; or (iv) material breach by the named executive officer of a material obligation under his employment agreement.
Under the employment agreements, the named executive officers may terminate their employment for good reason within two years of the occurrence of any of the following events (after the named executive officers have provided proper notice and given us the opportunity to remedy the condition in accordance with the procedures set forth in his respective employment agreement): (i) a material reduction by us in the named executive officers title or position, or a material reduction by us in the named executive officers authority, duties or responsibilities (which, in the case of Mr. Stout, includes no longer serving on our board of directors) or the assignment by us to the named executive officers of any duties or responsibilities that are materially inconsistent with such title, position, authority, duties or responsibilities; (ii) a material reduction in the named executive officers base salary; (iii) any material breach of the named executive officers employment agreement by us; or (iv) our requiring the named executive officer to relocate his office location more than 50 miles from Nashville, Tennessee.
In the employment agreements, change in control is defined to include (i) the acquisition of 35% or more of the combined voting power of our then outstanding securities by any person, entity or group; (ii) the change in ownership of a majority of the combined voting power of our then outstanding securities as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination transaction, sales of all or substantially all assets or contested election, or any combination of the foregoing; or (iii) a change, during any period of two consecutive years, in a majority of our directors, unless such newly elected directors were approved by a vote of at least two-thirds of the directors in office at the beginning of such period.
Each of the named executive officers employment agreements provides for certain tax reimbursement payments to the extent any payment made under the employment agreement becomes subject to excise taxes imposed by Section 4999 of the Code or any interest or penalties incurred by the named executive officer with respect to such excise tax.
Payments Made Pursuant to the Severance Benefits Agreement . In 1989, JAC entered into a Severance Benefits Agreement with Mr. Stout (the Severance Benefits Agreement) pursuant to which Mr. Stout would receive lump sum payments representing 18 months of his salary upon termination by us without cause or resignation by Mr. Stout for reason. Under the Severance Benefits Agreement, Mr. Stout has reason to terminate his employment if his present job responsibilities change or there is a decrease in his compensation or some other economic loss; provided, however, that the assignment of Mr. Stout to a position at FNH in its main corporate office or upscale division office in Nashville, Tennessee with similar duties and responsibilities and substantially similar salary and benefits or their equivalent value as Mr. Stouts salary and benefits prior to the acquisition of JAC by FNF will not give rise to his right to terminate his employment for reason. Under
147
the Severance Benefits Agreement, Mr. Stout would not be entitled to severance benefits if he were terminated for cause. Under the Severance Benefits Agreement, we will have cause only if termination was the result of an act or acts of dishonesty by Mr. Stout constituting a felony and resulting in or intended to result in substantial gain or personal enrichment at our expense. As described above, any payments actually made under the Severance Benefits Agreement to Mr. Stout will offset and reduce any amounts that become payable under his employment agreement.
Payments Made Pursuant to the Amended and Restated Salary Continuation Agreements . We are also a party to Amended and Restated Salary Continuation Agreements with each of the named executive officers that provide for annual retirement benefits payable upon termination of employment. This type of annual retirement benefit was implemented by JAC over 30 years ago and is the primary retirement benefit for the named executive officers. The amounts described below assume that terminations occurred as of December 28, 2014.
The Amended and Restated Salary Continuation Agreements, which may be updated or replaced by new agreements from time to time prior to a change in control, and were in fact amended in connection with, and prior to, the acquisition of JAC by FNF, provide for an annual retirement benefit of 50% of the employees base salary on the date of his termination of service with us for any reason other than death if such termination occurs on or after attaining the age of 65. Pursuant to letter agreements that amended the terms of the Amended and Restated Salary Continuation Agreements, for the purpose of calculating benefits under the Amended and Restated Salary Continuation Agreements, Messrs. Stouts and Moores base salary is set at their respective base salaries on the date of the acquisition of JAC by FNF, which was $430,400 and $176,700, respectively; for Mr. Parkey, base salary is set at $200,000 pursuant to his July 1, 2014 letter agreement. The retirement benefit is payable over 15 years commencing within 30 days of the employees retirement. The same benefit is available to the beneficiaries of an employee who dies while in office, but after age 65. The Amended and Restated Salary Continuation Agreements also provide that in the event an employee dies while in our employ before attaining the age of 65, his beneficiaries will receive specified benefit payments for a period of ten years, or until such time as the employee would have attained age 65, whichever period is longer. The payments in this instance are 100% of the employees base salary, in the amounts set forth above, for the first year after death and 50% of the employees base salary, in the amounts set forth above, each year thereafter in the death benefits period. The annual payment for the first year after death for Messrs. Stout, Parkey and Moore would be $430,400, $200,000 and $176,700, respectively.
In connection with the acquisition of JAC by FNF, the Amended and Restated Salary Continuation Agreements with each of the named executive officers were amended to suspend our obligation and that of our successors to establish and fund a rabbi trust with respect to certain retirement benefits upon a change in control of JAC (which occurred when FNF acquired JAC in 2012), in exchange for FNFs guarantee of our obligations under the Amended and Restated Salary Continuation Agreements until (a) FNH beneficially owns any interest in JAC or its successors and permitted assigns (which occurred in 2013), at which time FNH will also guarantee the performance of our obligations under the Amended and Restated Salary Continuation Agreements, and (b) FNF no longer retains direct or indirect beneficial ownership of at least 40% of JAC or its successors and permitted assigns, at which time, upon the occurrence of both (a) and (b), our obligations under the Amended and Restated Salary Continuation Agreement to fund a rabbi trust will resume, and upon the establishment and funding by us of the rabbi trust, FNFs guarantee will terminate; provided, however, that FNHs guarantee of our obligations under the Amended and Restated Salary Continuation Agreements will continue in force until all such obligations are satisfied. As FNF will not retain a beneficial ownership of at least 40% of J. Alexanders Holdings, LLC, successor to JAC, the distribution will trigger our obligation to fund a rabbi trust under the Amended and Restated Salary Continuation Agreements.
148
Our obligations under the Amended and Restated Salary Continuation Agreements, if termination had occurred on December 28, 2014, are described in the table below. None of our non-employee directors are party to a Salary Continuation Agreement.
If a termination of service had occurred on December 28, 2014, the annual retirement benefit for each of Mr. Stout, Mr. Parkey and Mr. Moore under the Amended and Restated Salary Continuation Agreements would have been $215,200, $100,000 and $88,350, respectively. Payments to Mr. Stout would have commenced 30 days following his termination. Pursuant to an election made in accordance with the terms of their respective Amended and Restated Salary Continuation Agreements, payments to Messrs. Parkey and Moore would have been scheduled to commence once the named executive officer attained the age of 65.
The following table summarizes our obligations under the employment agreements, Mr. Stouts Severance Benefits Agreement and the Amended and Restated Salary Continuation Agreements to the named executive officers upon (i) a termination of employment or (ii) a termination of employment without cause or a resignation for good reason within the 36-month period following a change in control assuming, in each case, that such termination and change in control occurred on December 28, 2014:
Name |
Termination by
Company for Cause; by Executive Without Good Reason; or the Result of Disability |
Termination by
Company Without Cause or by Executive for Good Reason not Following a Change in Control |
Termination by
Company Without Cause or by Executive for Good Reason Following a Change in Control |
|||||||||
Lonnie J. Stout II |
||||||||||||
Employment Agreement(1) |
| $ | 3,188,967 | $ | 3,188,967 | |||||||
Severance Benefits Agreement(2) |
| $ | 825,000 | $ | 825,000 | |||||||
Salary Continuation Agreement(3) |
$ | 2,595,326 | $ | 2,595,326 | $ | 2,595,326 | ||||||
Mark A. Parkey |
||||||||||||
Employment Agreement(1) |
$ | 748,632 | $ | 1,119,205 | ||||||||
Salary Continuation Agreement(3) |
$ | 657,059 | $ | 657,059 | $ | 657,059 | ||||||
J. Michael Moore |
||||||||||||
Employment Agreement(1) |
$ | 748,632 | $ | 1,119,205 | ||||||||
Salary Continuation Agreement(3) |
$ | 672,991 | $ | 672,991 | $ | 672,991 | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | 3,925,376 | $ | 9,436,607 | $ | 10,177,753 |
(1) |
Termination amounts payable to each named executive officer under the Employment Agreements are payable as lump sum payments. For Mr. Stout, payments under his Employment Agreement are reduced by amounts actually paid under his Severance Benefits Agreement. Consequently, the amounts reported as payments under Mr. Stouts Employment Agreement are reduced by the amounts that would be paid pursuant to his Severance Benefits Agreement. |
(2) |
Termination amounts payable to Mr. Stout under his Severance Benefits Agreement are payable as lump sum payments. Amounts represent 18 months of base salary. Messrs. Parkey and Moore are not parties to a Severance Benefits Agreement. |
149
(3) |
Assuming a termination on December 28, 2014, amounts indicated for each named executive officer represent the present value of benefits to be paid over a period of fifteen years, which would have been scheduled to commence once the named executive officer attained the age of 65, or, in the case of Mr. Stout, 30 days following his termination. |
Upon termination by us without cause or by the named executive officer for good reason, or upon termination as the result of disability, each named executive officer would be eligible for certain continued health insurance benefits for him and his dependents, for a period of two years or for a period of three years upon a termination in connection with a change in control. No payments would be made upon a change in control not involving a termination.
Director Compensation
Our current directors were appointed in connection with our formation in 2014, and did not receive compensation for their service as a director for the year ended December 28, 2014. In addition, our directors who were also non-employee members of the board of managers of J. Alexanders Holdings, LLC did not receive any compensation for their service as a manager of J. Alexanders Holdings, LLC during the year ended December 28, 2014. Following the distribution, our director compensation program will be comprised of a cash component and an equity component. We anticipate that the cash component of our director compensation program will consist of:
|
an annual cash retainer for non-employee directors; |
|
meeting fees for each board and committee meeting attended, with differing amounts paid for meetings attended in-person and meetings attended telephonically; |
|
an annual cash retainer for acting as a chair of the audit committee and for acting as a member of the audit committee; and |
|
an annual cash retainer for acting as a chair of any other committee and for acting as a member of any other committee. |
We will also reimburse our directors for their travel and related out-of-pocket expenses in connection with attending board, committee and shareholders meetings. In addition, we anticipate that annual equity awards will be an aspect of director compensation. Directors who are also employees, such as Mr. Stout, will not receive any additional compensation for their services as directors. Directors are also entitled to the protection provided by their indemnification agreements and the indemnification provisions in our charter and bylaws.
150
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the compensation arrangements with directors and executive officers described under Executive Compensation, the following is a description of each transaction since January 3, 2013, and each currently proposed transaction in which:
|
we have been or are to be a participant; |
|
the amount involved exceeded or will exceed $120,000; and |
|
any of our directors, executive officers, beneficial holders of more than 5% of our capital stock, or any member of their immediate family or person sharing their household had or will have a direct or indirect material interest. |
The Distribution
The distribution will be accomplished by FNF distributing all of the shares of our common stock that it owns to holders of FNFV common stock entitled to such distribution, as described under Distribution. Completion of the distribution will be subject to satisfaction or waiver by FNF of the conditions to the separation and distribution described below under Agreements with FNFSeparation and Distribution Agreement. After the distribution, we will be an independent, publicly owned company.
Agreements with FNF
We have provided below a summary description of the Separation and Distribution Agreement and the key related agreements we will enter into with FNF and related parties prior to the distribution. These agreements effect the separation and distribution and also provide a framework for our ongoing relationship with FNF. This description, which summarizes the material terms of these agreements, is not necessarily complete. You should read the full text of these agreements, forms of which have been filed with the SEC as exhibits to the registration statement of which this information statement forms a part. FNF and we intend to execute the Separation and Distribution Agreement and the ancillary agreements before the distribution.
Because the separation and distribution involves the separation of FNFs existing businesses, we negotiated these agreements with FNF while we were a majority-owned subsidiary of FNF. Accordingly, during this time our directors and officers were directors, officers and employees of FNF and, as such, had an obligation to serve the interests of FNF. We believe our officers and officers of FNF negotiated these arrangements in good faith taking into account the interests of their respective companies in the separation.
Separation and Distribution Agreement
The Separation and Distribution Agreement will contain the key provisions relating to the separation of our business from that of FNF and the distribution. The Separation and Distribution Agreement includes procedures by which FNF and we will become separate and independent companies. It will also contain the conditions that must be satisfied, or waived by FNF, prior to completion of the separation and distribution.
151
Pre-Distribution Occurrences . The Separation and Distribution Agreement will provide, subject to the terms and conditions contained in the agreement and prior to the distribution, that the following will occur:
|
the transfer by FNFV to JAX Investments of a 1% Class A membership interest in J. Alexanders Holdings, LLC; |
|
the contribution by all members of J. Alexanders Holdings, LLC, other than JAX Investments and members of our management, of their membership interests in J. Alexanders Holdings, LLC to us in exchange for our issuance of shares of our common stock to them; |
|
the distribution by FNFV to FNF of all of FNFVs shares of our common stock; and |
|
the recapitalization of our common stock such that the number of shares of our common stock issued and outstanding and owned by FNF immediately before the distribution shall be in an amount calculated on the basis of the following: 0.16391 shares of our common stock with respect to every one share of FNFV common stock issued and outstanding immediately before the distribution. |
Distribution . The Separation and Distribution Agreement will provide that the completion of the separation and distribution are subject to several conditions that must be satisfied, or waived by FNF, including:
|
the board of directors of FNF shall have given final approval of the separation and distribution, which approval the board of directors of FNF may give in its sole and absolute discretion; |
|
the SEC shall have declared effective the registration statement of which this information statement forms a part, and no stop order shall be in effect with respect to the registration statement; |
|
the actions and filings necessary or appropriate to comply with federal and state securities and blue sky laws and any comparable foreign laws shall have been taken and where applicable become effective or been accepted; |
|
the NYSE shall have accepted for listing the shares of our common stock to be issued in the distribution, subject to official notice of issuance; |
|
no order by any court or other legal or regulatory restraint preventing completion of the separation or the distribution shall be threatened or in effect; |
|
FNF shall have received an opinion from KPMG LLP, its tax advisor, satisfactory to FNF, to the effect that the distribution of our shares by FNF to the holders of FNFV common stock will qualify as a distribution that is tax-free under Section 355 and other related provisions of the Code; |
|
all consents and governmental or other regulatory approvals required in connection with the transactions contemplated by the Separation and Distribution Agreement shall have been received; |
152
|
each of the Tax Matters Agreement and Management Consulting Agreement shall have been entered into prior to the distribution and remain in full force and effect; |
|
FNF shall have established the record date for determining holders of FNFV common stock entitled to receive shares of our common stock pursuant to the distribution; |
|
the distribution will not violate or result in a breach of law or any material agreement; |
|
each of the other pre-distribution occurrences shall have occurred; and |
|
the board of directors of FNF shall not have determined that any event or development has occurred or exists that makes it inadvisable to effect the distribution. |
Indemnification . In general, under the Separation and Distribution Agreement, we will indemnify FNF and its representatives and affiliates against certain liabilities, to the extent relating to, arising out of or resulting from:
|
our failure to pay, perform or otherwise promptly discharge any of our liabilities or any of our contracts or agreements in accordance with their respective terms; |
|
any of our liabilities, any of our assets or the operation of our business or prior businesses, whether arising prior to or after the distribution; |
|
any breach by us of the Separation and Distribution Agreement; |
|
any untrue statement or alleged untrue statement of a material fact or material omission or material alleged omission to state a material fact required to be stated in the registration statement of which this information statement forms a part or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case, other than certain information relating to FNF; and |
|
our failure to substitute a subsidiary or affiliate, owned by us immediately prior to the distribution but after the reorganization, for any subsidiary or affiliate of FNF, owned by FNF immediately after the distribution, as guarantor or primary obligor for any of our agreements or liabilities. |
In general, under the Separation and Distribution Agreement, FNF will indemnify us and our representatives and affiliates against certain liabilities to the extent relating to, arising out of or resulting from:
|
the failure of FNF to pay, perform or otherwise promptly discharge any liability of FNF or any FNF contract or agreement in accordance with its respective terms; |
|
any of FNFs liabilities, any of its assets or the operation of its retained businesses (other than our business), whether arising prior to or after the distribution; |
|
any breach by FNF of the Separation and Distribution Agreement; |
|
any untrue statement or alleged untrue statement of a material fact or material omission or material alleged omission to state a material fact required to be stated in the registration statement of which this information statement forms a part or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case, only for certain information relating to FNF; and |
153
|
the failure by FNF to substitute a subsidiary or affiliate of FNF, owned by FNF immediately after the distribution, for any of our subsidiaries or affiliates, owned by us immediately prior to the distribution but after the reorganization, as guarantor or primary obligor for any FNF agreement or liability. |
Indemnification with respect to taxes will be governed by the Tax Matters Agreement.
Access to Information . Under the Separation and Distribution Agreement, the following terms govern access to information:
|
after the distribution, subject to applicable confidentiality provisions and other restrictions, we and FNF will each give the other any information within that companys possession that the requesting party reasonably needs (a) to comply with the requirements imposed on the requesting party by a governmental authority, (b) for use in any proceeding to satisfy audit, accounting, insurance claims, regulatory, litigation or other similar requirements, (c) to comply with its obligations under the Separation and Distribution Agreement or certain of the ancillary agreements or (d) to enable the requesting partys auditors to be able to complete their audit and preparation of financial statements and to meet the requesting partys timetable for dissemination of its financial statements; |
|
we and FNF will retain certain significant information owned or in our respective possession in accordance with our and FNFs practices from time to time; and |
|
we and FNF will, subject to applicable confidentiality provisions and other restrictions, use reasonable best efforts to make available to the other party, our respective past and present directors, officers, employees and other personnel and agents to the extent reasonably required in connection with any proceedings in which the other party may become involved. |
Limited Representations and Warranties . Pursuant to the Separation and Distribution Agreement, we and FNF will make customary representations and warranties only with respect to our capacity to enter into and the validity and enforceability of the Separation and Distribution Agreement and the ancillary agreements.
Termination and Amendment . The Separation and Distribution Agreement may be terminated or amended at any time prior to the distribution by FNF, in its sole discretion. In the event of the termination of the Separation and Distribution Agreement, neither party shall have any further liability to the other party.
Expenses . In general, FNF will be responsible for expenses incurred in connection with the transactions contemplated in the Separation and Distribution Agreement prior to the distribution.
Tax Matters Agreement . The Tax Matters Agreement will govern both our and FNFs rights and obligations after the distribution with respect to taxes for both pre- and post-distribution periods. Under the Tax Matters Agreement, FNF generally will be required to indemnify us for any income taxes attributable to its operations or our operations and for any non-income taxes attributable to its operations, in each case for all pre-distribution periods as well as any taxes arising from transactions effected to consummate the separation and distribution, and we generally will be required to indemnify FNF for any non-income taxes attributable to our operations for all pre-distribution periods and for any taxes attributable to our operations for post-distribution periods.
154
We will generally be required to indemnify FNF against any tax resulting from the distribution (and against any claims made against FNF in respect of any tax imposed on its stockholders), in each case if that tax results from (i) an issuance of a significant amount of our equity securities, a redemption of a significant amount of our equity securities or our involvement in other significant acquisitions of our equity securities (excluding the distribution described in this information statement), (ii) other actions or failures to act by us (such as those described in the following paragraph) or (iii) any of our representations or undertakings referred to in the Tax Matters Agreement being incorrect or violated. FNF will generally be required to indemnify us for any tax resulting from the distribution.
In addition, to preserve the tax-free treatment to FNF of the distribution, for specified periods of up to 24 months following the distribution, we will generally be prohibited, except in specified circumstances, from:
|
issuing, redeeming or being involved in other significant acquisitions of our equity securities (excluding the distribution described in this information statement); |
|
voluntarily dissolving or liquidating; |
|
transferring significant amounts of our assets; |
|
amending our certificate of incorporation or by-laws in any material respect; |
|
failing to comply with the tax requirement for a spin-off that we engage in the active conduct of a trade or business after the spin-off; or |
|
engaging in other actions or transactions that could jeopardize the tax-free status of the distribution. |
Though valid as between the parties, the Tax Matters Agreement is not binding on the IRS and does not affect the several liability of FNF and us for all U.S. federal taxes of the consolidated group relating to periods before the distribution date.
Management Consulting Agreement
Immediately prior to the distribution, J. Alexanders Holdings, LLC will enter into the Management Consulting Agreement with the Management Consultant pursuant to which the Management Consultant will provide corporate and strategic advisory services to us. Under the Management Consulting Agreement, J. Alexanders Holdings, LLC will issue the Management Consultant non-voting Class B Units in an amount equal to 10% of the outstanding units of J. Alexanders Holdings, LLC, and pay the Management Consultant an annual fee equal to 3% of our Adjusted EBITDA for each fiscal year during the term of the Management Consulting Agreement. We will also reimburse the Management Consultant for its direct out-of-pocket costs incurred for management services provided to us. Under the Management Consulting Agreement, Adjusted EBITDA means our net income (loss) before interest expense, income tax (expense) benefit, depreciation and amortization, and adding asset impairment charges and restaurant closing costs, loss on disposals of fixed assets, transaction and integration costs, non-cash compensation, loss from discontinued operations, gain on debt extinguishment, pre-opening costs and certain unusual items.
Each Class B Unit represents a non-voting equity interest in J. Alexanders Holdings, LLC that entitles the holder thereof to a percentage of the profits and appreciation in the equity value of J. Alexanders Holdings, LLC arising after the date of grant. The Management Consultant will only participate in distributions by J. Alexanders Holdings, LLC following such time as a specified hurdle
155
amount has been previously distributed to holders of Class A Units of J. Alexanders Holdings, LLC (i.e., the Company and its wholly-owned subsidiary, JAX Investments). The hurdle amount with respect to the Class B Units issued to the Management Consultant will be based on the volume weighted average of the closing price of our common stock over the five trading days preceding the distribution. None of the Class B Units will be vested upon issuance. Instead, the Class B Units issued to the Management Consultant will vest with respect to one-third of such Class B Units on each of the first, second and third anniversaries of the date of grant.
The vesting of the Class B Units issued to the Management Consultant will be subject to acceleration upon a change in control of us, our termination of the Management Consulting Agreement without cause or the termination of the Management Consulting Agreement by the Management Consultant as a result of our breach of the Management Consulting Agreement.
Vested Class B Units may be exchanged for shares of our common stock. However, upon termination of the Management Consulting Agreement for any reason, Management Consultant must exchange its Class B Units within 90 days, or such units will be forfeited.
The Management Consulting Agreement will continue in effect for an initial term of seven years and be renewed for successive one-year periods thereafter unless earlier terminated (i) by us upon at least six months prior notice to the Management Consultant or (ii) by the Management Consultant upon 30 days prior notice to us. In the event that we terminate the Management Consulting Agreement prior to the tenth anniversary thereof, or the Management Consultant terminates the Management Consulting Agreement within 180 days after a change of control event with respect to us, we will be obligated to pay to the Management Consultant an early termination payment equal to the product of (i) the annual base fee for the most recent fiscal year and (ii) the difference between ten and the number of years that have elapsed under the Management Consulting Agreement, provided that in the event of such a termination following a change of control event, the multiple of the annual base fee to be paid shall not exceed three.
The principal member of the Management Consultant is William P. Foley, II, Senior Managing Director of FNFV. The other members of the Management Consultant consist of certain of our officers and directors and officers and directors of FNFV, including Lonnie J. Stout II, our President, Chief Executive Officer and one of our directors; Brent B. Bickett, one of our directors and Managing Director of FNFV; Greg Lane, FNFVs Managing Director and General Counsel; Michael Gravelle, FNFVs Managing Director and Corporate Secretary; Richard L. Cox, FNFVs Managing Director and Chief Tax Officer; and David Ducommun, FNFVs Managing DirectorCorporate Finance.
FNF Promissory Note
In February 2013, in connection with the contribution of all of the outstanding membership interests in J. Alexanders, LLC by FNFV to J. Alexanders Holdings, LLC, J. Alexanders Holdings, LLC assumed from FNFV the FNF Note, dated as of January 31, 2013. The note accrued interest at 12.5% per annum, and the interest and principal were to be payable in full on January 31, 2016. During the fiscal year ended December 29, 2014, $2,479,000 of interest expense payable to FNF was recorded related to this note. During the three months ended March 29, 2015, interest expense associated with the FNF Note was $316,000. The FNF Note was repaid in full in May 2015.
156
Transactions with ABRH, LLC
Following the transfer by FNH of the Stoney River Assets to us in February 2013, the former operating parent company of Stoney River, ABRH, LLC, a wholly owned subsidiary of FNH, continued to process transactions for the Stoney River restaurants in order to assist in the transition of point-of-sale systems, the accounts payable function, the payroll function and third-party gift card sales. Although no management or service fees were paid for these services, monies were transferred between ABRH, LLC and J. Alexanders Holdings, LLC on a regular basis. Further, J. Alexanders Holdings, LLC began utilizing the internal audit function of ABRH, LLC to perform internal controls testing on behalf of FNF, as well as to perform certain operational audits at the restaurant level. J. Alexanders Holdings, LLC is billed by ABRH, LLC for these services, which totaled approximately $50,000 of general and administrative expense for the year ended December 28, 2014.
Indemnification Agreements
We intend to enter into indemnification agreements with each of our current directors and officers. These agreements will require us to indemnify these individuals to the fullest extent permitted under Tennessee law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.
Policies and Procedures for Related Party Transactions
Our code of business conduct and ethics states that a conflict of interest occurs when an individuals private interests interfere in any way, or appear from the perspective of a reasonable person to interfere in any way, with our interests as a whole, and provides further that a conflict situation can arise when an employee or director takes actions or has interests that may make it difficult to perform his or her responsibilities objectively and effectively. We believe that a conflict exists whenever an outside interest could actually or potentially influence the judgment or actions of an individual in the conduct of our business and that conflicts of interest may arise when an employee or director, or a member of his or her family, receives improper personal benefits as a result of his or her position.
Our code of business conduct and ethics provides directors and employees must avoid conflicts or the appearance of conflicts, and that employees should avoid any outside financial interests that might conflict with our interests. Such outside interests could include, among other things:
|
Personal or family financial interests in, or indebtedness to, enterprises that have business relations with us, such as relatives who are employed by or own an interest in consultants or suppliers; |
|
Acquiring any interest in outside entities, properties, etc., in which we have an interest or potential interest; |
|
Conduct of any business not on our behalf with any consultant, contractor, supplier, or distributor doing business with us or any of their officers or employees, including service as a director or officer of, or employment or retention as a consultant by, such persons; or |
|
Serving on the board of directors of an outside entity whose business competes with our business. |
Under our code of business conduct and ethics, employees are required to report any material transaction or relationship that could result in a conflict of interest to our compliance officer.
157
Our audit committee will be responsible for the review, approval, or ratification of any potential conflict of interest transaction involving any of our directors or executive officers, director nominees, any person known by us to be the beneficial owner of more than five percent of any class of our voting securities, or any family member of or related party to such persons, including any transaction required to be reported under Item 404(a) of Regulation S-K promulgated by the SEC.
In reviewing any such proposed transaction, our audit committee will be tasked to consider all relevant facts and circumstances, including the commercial reasonableness of the terms, the benefit or perceived benefit, or lack thereof, to us, opportunity costs of alternate transactions, the materiality and character of the related persons direct or indirect interest and the actual or apparent conflict of interest of the related person.
All related party transactions described in this section occurred prior to establishment of our audit committee and as such, these transactions were not subject to the approval and review procedures set forth above, but were approved by our board of directors as a whole, as constituted at the time of such approval.
158
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date hereof, 87.44% of the outstanding shares of our common stock are owned by FNF. After the distribution, FNF will not own any shares of our common stock.
The following table sets forth information regarding beneficial ownership of our common stock after the distribution and giving effect to the reorganization transactions described under Corporate Structure, by:
|
each person whom we expect to own beneficially more than 5% of our common stock; |
|
each of our directors and named executive officers individually; and |
|
all directors and executive officers as a group. |
Following the distribution, we are expected to have outstanding an aggregate of approximately 15 million shares of common stock based upon approximately 80,021,787 shares of FNFV common stock outstanding on [ ], 2015, excluding treasury shares and assuming no exercise, vesting or settlement of FNF equity awards in shares of FNFV common stock, and applying the distribution ratio of 0.16391 shares of our common stock for every one share of FNFV common stock held as of the record date. Unless otherwise noted in the footnotes following the table, (i) the persons as to whom the information is given had sole voting and investment power over the stock shown as beneficially owned and (ii) the address for each beneficial owner listed below is: c/o J. Alexanders Holdings, Inc., 3401 West End Avenue, Suite 260 Nashville, Tennessee 37203.
159
The amounts and percentages of common stock beneficially owned are reported on the basis of the regulations of the SEC governing the determination of beneficial ownership of securities. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of such security, or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities.
Name and Address of Beneficial Owner |
Amount and
Nature of Beneficial Ownership |
Percent of
Class |
||
5% Stockholders |
||||
Newport Global Opportunities Fund AIV-A LP(1) |
[ ] | 10.85% | ||
BlackRock, Inc. (2) | [ ] | [9.0%] | ||
Eminence Capital LP (3) | [ ] | [7.3%] | ||
Directors and Executive Officers | ||||
Lonnie J. Stout II Mark A. Parkey J. Michael Moore Brent B. Bickett (4) William P. Foley Timothy T. Janszen (5) Frank R. Matire Ronald B. Maggard, Sr. |
All directors and executive officers as a group ( persons)
* |
Indicates less than one percent. |
(1) |
The address for Newport Global Opportunities Fund AIV-A LP is 21 Waterway Avenue, Suite 150, The Woodlands, Texas 77380. Newport Global Advisors is the investment manager to Newport and, as a result, Newport Global Advisors, under the direction of its Investment Committee comprised of Timothy T. Janzen and Ryan L. Langdon, holds voting and dispositive power with respect to the shares of our common stock held by Newport. |
(2) |
Based on a Schedule 13G/A filed February 6, 2015, BlackRock, Inc., whose address is 40 East 52nd Street, New York, NY 10022, may be deemed to be the beneficial owner of these shares. |
(3) |
Based on a Schedule 13G filed February 17, 2015, Eminence Capital, LP., whose address is 65 East 55th Street, 25th Floor, New York, New York 10022, may be deemed to have voting and dispositive power over the shares. Ricky Sandler is the Chief Executive Officer of Eminence Capital, LP and may be deemed to be the beneficial owner of these shares. |
160
(4) |
[Reflects [ ] shares of common stock held by family trusts, of which Mr. Bickett is the trustee. Mr. Bicketts address is c/o Fidelity National Financial, Inc., 601 Riverside Avenue, Jacksonville, Florida 32204.] |
(5) |
Reflects [ ] shares of common stock held by Newport. Mr. Janszen is the Chief Executive Officer of Newport Global Advisors. Newport Global Advisors is the investment manager to Newport Global Opportunities Fund AIV-A LP. As a result, as the Chief Executive Officer of Newport Global Advisors, Mr. Janszen may be deemed to have beneficial ownership of the securities over which Newport has voting or dispositive power. Mr. Janszens address is c/o Newport Global Advisors LP, 21 Waterway Avenue, Suite 150, The Woodlands, Texas 77380. |
161
The following descriptions are summaries of the material terms of our amended and restated charter and amended and restated bylaws that will be in effect upon the consummation of the distribution. Reference is made to the more detailed provisions of, and the descriptions are qualified in their entirety by reference to, the amended and restated charter and amended and restated bylaws, forms of which are filed with the SEC as exhibits to the registration statement of which this information statement is a part.
General
Our authorized capital stock consists of 30 million shares of common stock, par value $0.001 per share, and 10 million shares of preferred stock, par value $0.001 per share.
Common Stock
Common stock outstanding. All shares of common stock are fully paid and non-assessable.
Voting rights. The holders of common stock are entitled to one vote per share on all matters to be voted upon by the shareholders.
Dividend rights. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of shares of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available therefor. However, we do not intend to pay dividends for the foreseeable future. See Dividend Policy.
Rights upon liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, the holders of common stock are entitled to share ratably in all assets remaining after payment of our debts and other liabilities, subject to prior distribution rights of preferred stock, then outstanding, if any.
Other rights. The holders of our common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of holders of our common stock will be subject to those of the holders of any shares of our preferred stock we may issue in the future.
Preferred Stock
Our board of directors has the authority to issue shares of preferred stock in one or more series and to fix the rights, preferences and limitations thereof, including dividend rights, specification of par value, conversion rights, voting rights, terms of redemption, specification of par value, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the shareholders.
The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of J. Alexanders Holdings, Inc. without further action by the shareholders and may adversely affect the voting and other rights of the holders of common stock. At present, we have no shares of preferred stock issued and outstanding and we have no plans to issue any preferred stock.
162
Election and Removal of Directors; Vacancies
Our amended and restated charter provides that our board of directors will consist of between three and 15 directors. The exact number of directors will be fixed from time to time by a majority of our board of directors. In accordance with our amended and restated charter, our board of directors will be divided into three classes of directors, designated Class I, Class II and Class III, each class with overlapping three-year terms. Each class will constitute, as nearly as possible, one-third of the total number of directors.
In accordance with our amended and restated charter, one class of directors will be elected at each annual meeting of shareholders to serve for a three-year term. However, because we will be a newly established public company, the term of the initial Class I directors will terminate on the date of the 2016 annual meeting of shareholders; the term of the initial Class II directors will terminate on the date of the 2017 annual meeting of shareholders and the term of the initial Class III directors will terminate on the date of the 2018 annual meeting of shareholders. At each annual meeting of shareholders beginning in 2016, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term. As a result, approximately one-third of our board of directors will be elected each year. There will be no limit on the number of terms a director may serve on our board of directors.
Neither Newport nor any other shareholder will have contractual rights to designate nominees for election to our board of directors. Following the distribution, nominees to our board of directors will be designated and elected in accordance with our amended and restated bylaws and our amended and restated charter. The nominating committee of our board of directors will be responsible for evaluating and recommending director nominees for election to our board of directors. At this time, FNF has two members of our board of directors and Newport has one member that is affiliated with such entity and it is anticipated that each of FNF and Newport will continue to have one or more members of our board of directors that is an affiliate of such entity.
Our amended and restated charter provides that, subject to any rights of any voting group established pursuant to our amended and restated bylaws or any applicable shareholders agreement, any director may be removed from office at any time but only for cause and only by (i) the affirmative vote of the holders of 66 2 ⁄ 3 % of the voting power of the shares entitled to vote for the election of directors, considered for this purpose as one class or (ii) the affirmative vote of a majority of the entire board of directors then in office. In addition, our amended and restated charter will provide that any vacancy on the board of directors, including a vacancy that results from an increase in the number of directors or a vacancy that results from the removal of a director with cause, may be filled only by a majority of the directors then in office.
No Cumulative Voting
The Tennessee Business Corporation Act provides that shareholders are not entitled to the right to cumulate votes in the election of directors unless our amended and restated charter provides otherwise. Our amended and restated charter will not provide for cumulative voting.
Limits on Written Consents
The Tennessee Business Corporation Act permits shareholder action by unanimous written consent and, if a corporations charter so provides, by written consent of holders of outstanding shares having not less than the minimum number of votes that would be required to authorize or take the action at a meeting at which all shares entitled to vote on the action were present and voted. Our amended and restated charter permits shareholder action only by unanimous written consent.
163
Shareholder Special Meetings
Our amended and restated charter and our amended and restated bylaws provide that special meetings of shareholders may be called at any time, but only by the chairman of our board of directors, our chief executive officer, or by our board of directors, and not by our shareholders.
Amendment of Amended and Restated Charter
Our amended and restated charter provides that the provisions of our amended and restated charter relating to our capital structure, voting rights, dividends, distributions upon liquidation, dissolution or winding up, preferred stock, preemptive rights, board of directors, limited liability of directors, indemnification of directors, control share acquisitions, business combinations, action taken by written consent of our shareholders, special meetings of shareholders, forum exclusivity and amendment of our amended and restated charter or our amended and restated bylaws in a manner inconsistent with such provisions may be amended only by the affirmative vote of holders of at least 66 2 ⁄ 3 % of the voting power of our outstanding shares of voting stock, voting together as a single class. The affirmative vote of holders of at least a majority of the votes entitled to be cast on the amendment will generally be required to amend other provisions of our amended and restated charter.
Amendment of Amended and Restated Bylaws
Our amended and restated bylaws provide that such bylaws may generally be altered, amended or repealed, and new bylaws may be adopted, by a majority of our board of directors, and any bylaws adopted by our board of directors may be amended or repealed by the affirmative vote of the holders of at least 66 2 ⁄ 3 % of the voting power of the outstanding shares entitled to vote generally in the election of directors, voting together as a single class; provided, however, that no provision of our bylaws may be adopted, amended or repealed which will interpret or qualify, or impair or impede the implementation of any provision of our charter or which is otherwise inconsistent with the provisions of our charter.
Other Limitations on Shareholder Actions
Our amended and restated bylaws establish an advance notice procedure for shareholder proposals to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors. Shareholders at an annual meeting will only be able to consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board of directors or by a shareholder who is a shareholder of record who is entitled to vote at the meeting, or who is a shareholder that holds such stock through a nominee or street name holder of record and can demonstrate to us that such indirect ownership of such stock and such shareholders entitlement to vote such stock on such business, and who has given our secretary timely written notice, in proper form, of the shareholders intention to bring that business before the meeting. To be timely, such notice must be delivered to our secretary:
|
in the case of an annual meeting of shareholders, not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the preceding years annual meeting; provided, however, that in the event the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of the 90th day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made by us; and |
164
|
in the case of a special meeting of shareholders called for the purpose of electing directors, not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the date on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. |
Limitation of Liability and Indemnification of Directors and Officers
Our amended and restated charter provides that no director will be personally liable to us or our shareholders for monetary damages for breach of fiduciary duty as a director to fullest extent permitted by the Tennessee Business Corporation Act. Currently, the Tennessee Business Corporation Act prohibits the elimination or limitation of liability of directors for:
|
any breach of the directors duty of loyalty to us or our shareholders; |
|
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; and |
|
unlawful distributions under Section 48-18-302 of the Tennessee Business Corporation Act. |
As a result, neither we nor our shareholders have the right, through shareholders derivative suits on our behalf, to recover monetary damages against a director for breach of fiduciary duty as a director, except in the situations described above.
Our amended and restated charter provides that, to the fullest extent permitted by law, we will indemnify any officer or director of our Company against all expenses, liabilities and losses arising out of the fact that the person is or was our director or officer or served any other enterprise at our request as a director, officer, employee, manager, agent or trustee. We will also advance to such persons expenses related to such action, suits or proceedings when we receive an undertaking to repay such amounts if it is ultimately determined that the person is not entitled to be indemnified by us.
Forum Selection
The Court of Chancery of the State of Tennessee will be the sole and exclusive forum for any shareholder to bring (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or employees to us or our shareholders, (3) any action asserting a claim against us or our directors, officers or employees arising pursuant to any provision of the Tennessee Business Corporation Act or our charter or bylaws, or (4) any action asserting a claim against us or our directors, officers or employees governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our stock will be deemed to have notice of, and consented, to the foregoing forum selection provisions.
Corporate Opportunities
Our amended and restated charter provides that we renounce any interest or expectancy in the business opportunities that are from time to time presented to our non-employee directors, other than such opportunity expressly presented to such directors in their capacities as our directors, and such directors will not be liable to us or our shareholders for breach of any fiduciary or other duty by reason of the fact that they personally or on behalf of any other person pursue or acquire such
165
business opportunity, direct such business opportunity to another person or fail to present such business opportunity, or information regarding such business opportunity, to us. Some of our directors are affiliates of FNF and Newport. See Risk FactorsRisks Related to Our Structure.
Anti-Takeover Effects of Some Provisions
Some provisions of our amended and restated charter and bylaws could make the following more difficult:
|
acquisition of control of us by means of a proxy contest or otherwise, or |
|
removal of our incumbent officers and directors. |
These provisions, as well as our ability to issue preferred stock, are designed to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection give us the potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us, and that the benefits of this increased protection outweigh the disadvantages of discouraging those proposals, because negotiation of those proposals could result in an improvement of their terms.
Tennessee Anti-Takeover Law and Provisions of Our Charter and Bylaws
Under the Tennessee Business Combination Act and subject to certain exceptions, we may not engage in any business combination with an interested shareholder for a period of five years after the date on which the person became an interested shareholder unless the business combination or the transaction in which the shareholder becomes an interested shareholder is approved by our board of directors prior to the date the interested shareholder attained that status.
For purposes of the Tennessee Business Combination Act, business combinations generally include:
|
mergers, consolidations or share exchanges; |
|
sales, leases, exchanges, mortgages, pledges, or other transfers of assets representing 10% or more of the market value of consolidated assets, the market value of our outstanding shares, or our consolidated net income; |
|
issuances or transfers of shares from us to the interested shareholder; |
|
plans of liquidation; |
|
transactions in which the interested shareholders proportionate share of the outstanding shares of any class of securities is increased; or |
|
financing arrangements pursuant to which the interested shareholder, directly or indirectly, receives a benefit except proportionately as a shareholder. |
Subject to certain exceptions, an interested shareholder generally is a person who, together with his or her affiliates and associates, owns, or within five years did own, 10% or more of our outstanding voting stock.
166
After the five-year moratorium, we may complete a business combination if the transaction complies with all applicable charter and bylaw requirements and applicable Tennessee law and:
|
is approved by at least two-thirds of the outstanding voting stock not beneficially owned by the interested shareholder; or |
|
meets certain fair price criteria including, among others, the requirement that the per share consideration received in any such business combination by each of the shareholders is equal to the highest of (a) the highest per share price paid by the interested shareholder during the preceding five-year period for shares of the same class or series plus interest thereon from such date at a treasury bill rate less the aggregate amount of any cash dividends paid and the market value of any dividends paid other than in cash since such earliest date, up to the amount of such interest, (b) the highest preferential amount, if any, such class or series is entitled to receive on liquidation, or (c) the market value of the shares on either the date the business combination is announced or the date when the interested shareholder reaches the 10% threshold, whichever is higher, plus interest thereon less dividends as noted above. |
We are currently subject to the Tennessee Business Combination Act, and we intend to remain subject to such act after the completion of the distribution.
Under our amended and restated charter, we intend to be elect to be subject to the Tennessee Control Share Acquisition Act which prohibits certain shareholders from exercising in excess of 20% of the voting power in a corporation acquired in a control share acquisition unless such voting rights have been previously approved by the disinterested shareholders.
The Tennessee Greenmail Act prohibits us from purchasing or agreeing to purchase any of our securities, at a price in excess of fair market value, from a holder of 3% or more of our securities who has beneficially owned such securities for less than two years, unless the purchase has been approved by a majority of the outstanding shares of each class of our voting stock or we make an offer of at least equal value per share to all holders of shares of such class. The Tennessee Greenmail Act may make a change of control more difficult.
The Tennessee Investor Protection Act (the Investor Protection Act) applies to tender offers directed at corporations, such as J. Alexanders Holdings, Inc., that have substantial assets in Tennessee and that are either incorporated in or have a principal office in Tennessee. The Investor Protection Act requires an offer or making a tender offer for an offeree company to file a registration statement with the Commissioner of Commerce and Insurance. When the offeror intends to gain control of the offeree company, the registration statement must indicate any plans the offeror has for the offeree. The Commissioner may require additional information concerning the takeover offer and may call for hearings. The Investor Protection Act does not apply to an offer that the offeree companys board of directors recommends to shareholders.
In addition to requiring the offeror to file a registration statement with the Commissioner, the Investor Protection Act requires the offeror and the offeree company to deliver to the Commissioner all solicitation materials used in connection with the tender offer. The Investor Protection Act prohibits fraudulent, deceptive, or manipulative acts or practices by either side and gives the Commissioner standing to apply for equitable relief to the Chancery Court of Davidson County, Tennessee, or to any other chancery court having jurisdiction whenever it appears to the Commissioner that the offeror, the offeree company or any of its respective affiliates has engaged in or is about to engage in a violation of the Investor Protection Act. Upon proper showing, the chancery court may grant injunctive relief. The Investor Protection Act further provides civil and criminal penalties for violations.
167
Listing on the New York Stock Exchange
We intend to list the common stock on the NYSE under the symbol JAX. We have not yet filed an application to have our common stock approved for listing. We intend to file such application following the filing of the registration statement of which this information forms a part.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is: Computershare, 250 Royall Street, Canton, MA 02021.
Recent Sales of Unregistered Securities
In August 2014, in connection with our formation, we issued 1,000 shares of common stock to FNFV for an aggregate consideration of $1.00. These securities were issued in reliance on the exemption contained in Section 4(2) of the Securities Act on the basis that the transaction did not involve a public offering. No underwriters were involved in the sale.
In connection with the reorganization transaction, prior to the distribution, we will issue to FNFV, Newport Holdings and each other person holding membership interests of J. Alexanders Holdings, LLC, 15 million shares of common stock in consideration of the delivery to us of all of the outstanding limited liability company membership interests of J. Alexanders Holdings, LLC held by such persons. These shares of common stock will be issued in reliance on the exemption contained in Section 4(2) of the Securities Act on the basis that the transaction will not involve a public offering. No underwriters will be involved in the transaction.
168
DELIVERY OF INFORMATION STATEMENT
The SEC has adopted rules that permit companies and intermediaries, such as brokers, to satisfy delivery requirements for information statements with respect to two or more stockholders sharing the same address by delivering a single information statement to those stockholders. This process, known as householding, is intended to provide greater convenience for stockholders, and cost savings for companies, by reducing the number of duplicate documents that stockholders receive. Unless contrary instructions from one or more stockholders sharing an address have been received, only one copy of this information statement will be delivered to those multiple stockholders sharing an address.
If, at any time, a stockholder no longer wishes to participate in householding and would prefer to receive separate copies of the information statement, the stockholder should notify his or her intermediary or, if shares are registered in the stockholders name, should contact us at the address and telephone number provided below. Any stockholder who currently receives multiple copies of the information statement at his or her address and would like to request householding of communications should contact his or her intermediary or, if shares are registered in the stockholders name, should contact us at the address and telephone number provided below. Additionally, we will deliver, promptly upon written or oral request directed to the address or telephone number below, a separate copy of the information statement to any stockholders sharing an address to which only one copy was mailed.
Fidelity National Financial, Inc.
601 Riverside Avenue
Jacksonville, FL 32204
169
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form 10 with the SEC with respect to the shares of our common stock that the holders of FNFV common stock will receive in the distribution. This information statement forms a part of that registration statement and, as allowed by SEC rules, does not include all of the information you can find in the registration statement or the exhibits to the registration statement. For additional information relating to our company and the distribution, reference is made to the registration statement and the exhibits to the registration statement. Statements contained in this information statement as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
You can read our SEC filings, including the registration statement, over the Internet at the SECs website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You may also request a copy of these filings, at no cost, by writing or telephoning us at: 3401 West End Avenue, Suite 260 Nashville, Tennessee 37203 or (615) 269-1900.
After the distribution, we will be subject to the information and periodic reporting requirements of the Exchange Act, as amended, and we will file periodic reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We also maintain a website at www.jalexandersholdings.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this information statement.
170
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements |
||||
Report of Independent Auditors |
F-2 | |||
Consolidated Balance Sheets as of December 28, 2014 and December 29, 2013 |
F-3 | |||
Consolidated Statements of Operations for the Year ended December 28, 2014, December 29, 2013 and periods from October 1, 2012 to December 30, 2012 and from January 2, 2012 to September 30, 2012 |
F-4 | |||
Consolidated Statements of Membership Equity for the Year ended December 28, 2014, December 29, 2013 and periods from October 1, 2012 to December 30, 2012 and from January 2, 2012 to September 30, 2012 |
F-5 | |||
Consolidated Statements of Cash Flows for the Year ended December 28, 2014, December 29, 2013 and periods from October 1, 2012 to December 30, 2012 and from January 2, 2012 to September 30, 2012 |
F-6 | |||
Notes to Consolidated Financial Statements |
F-7 | |||
Unaudited Condensed Consolidated Financial Statements |
||||
Condensed Consolidated Balance Sheets as of March 29, 2015 and December 28, 2014 |
F-33 | |||
Condensed Consolidated Statements of Operations for the three months ended March 29, 2015 and March 30, 2014 |
F-34 | |||
Condensed Consolidated Statements of Cash Flows for the three months ended March 29, 2015 and March 30, 2014 |
F-35 | |||
Notes to Unaudited Condensed Consolidated Financial Statements |
F-36 |
J. Alexanders Holdings, Inc.
The financial statements of J. Alexanders Holdings, Inc. have been omitted from this presentation because the entity has not commenced operations, and has no activities except in connection with its formation as described under Our Corporate Structure.
F-1
Report of Independent Registered Public Accounting Firm
The Board of Managers
J. Alexanders Holdings, LLC:
We have audited the accompanying consolidated balance sheets of J. Alexanders Holdings, LLC as of December 28, 2014 and December 29, 2013, and the related consolidated statements of operations, membership equity, and cash flows for the years ended December 28, 2014 (Successor) and December 29, 2013 (Successor) and periods from October 1, 2012 to December 30, 2012 (Successor) and from January 2, 2012 to September 30, 2012 (Predecessor). These consolidated financial statements are the responsibility of J. Alexanders Holdings, LLCs management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of J. Alexanders Holdings, LLC as of December 28, 2014 and December 29, 2013, and the results of its operations and its cash flows for the years ended December 28, 2014 (Successor) and December 29, 2013 (Successor) and periods from October 1, 2012 to December 30, 2012 (Successor) and from January 2, 2012 to September 30, 2012 (Predecessor), in conformity with U.S. generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, effective September 26, 2012, Fidelity National Financial, Inc. acquired all of the outstanding stock of J. Alexanders Corporation in a business combination accounted for as a purchase. As a result of the acquisition, the consolidated financial information for the periods after the acquisition is presented on a different cost basis than that for the period before acquisition and, therefore, is not comparable.
Nashville, Tennessee |
/s/ KPMG LLP |
|||
April 3, 2015 |
KPMG LLP |
F-2
J. ALEXANDERS HOLDINGS, LLC | ||||||||||||||||
Consolidated Balance Sheets | ||||||||||||||||
December 28, 2014 and December 29, 2013 | ||||||||||||||||
(In thousands) | ||||||||||||||||
Assets | 2014 | 2013 | ||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 13,301 | $ | 18,069 | ||||||||||||
Accounts and notes receivable |
250 | 202 | ||||||||||||||
Accounts receivable from related party |
| 150 | ||||||||||||||
Inventories |
2,306 | 2,112 | ||||||||||||||
Prepaid expenses and other current assets |
3,003 | 1,483 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Total current assets |
18,860 | 22,016 | ||||||||||||||
Other assets |
4,405 | 4,631 | ||||||||||||||
Property and equipment, net |
86,263 | 83,216 | ||||||||||||||
Goodwill |
15,737 | 15,737 | ||||||||||||||
Trade name and other indefinite-lived intangibles |
25,155 | 25,155 | ||||||||||||||
Deferred charges, less accumulated amortization of $104 and $33 as of December 28, 2014 and December 29, 2013, respectively |
488 | 346 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 150,908 | $ | 151,101 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities and Membership Equity | ||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable |
$ | 5,719 | $ | 4,568 | ||||||||||||
Accrued expenses and other current liabilities |
12,014 | 8,547 | ||||||||||||||
Accrued expenses due to related party |
92 | 2,150 | ||||||||||||||
Unearned revenue |
3,466 | 4,031 | ||||||||||||||
Current portion of long-term debt and obligations under capital leases |
1,671 | 1,719 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Total current liabilities |
22,962 | 21,015 | ||||||||||||||
Long-term debt and obligations under capital leases, net of portion classified as current |
11,250 | 12,921 | ||||||||||||||
Long-term debt due to related party |
10,000 | 20,000 | ||||||||||||||
Deferred compensation obligations |
5,555 | 4,955 | ||||||||||||||
Other long-term liabilities |
4,252 | 3,755 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Total liabilities |
54,019 | 62,646 | ||||||||||||||
Membership equity |
96,889 | 88,455 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Total liabilities and membership equity |
$ | 150,908 | $ | 151,101 | ||||||||||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
J. ALEXANDERS HOLDINGS, LLC | ||||||||||||||||||||||||||||||||||
Consolidated Statements of Operations | ||||||||||||||||||||||||||||||||||
Years ended December 28, 2014 and December 29, 2013 and periods from | ||||||||||||||||||||||||||||||||||
October 1, 2012 to December 30, 2012 and from January 2, 2012 to September 30, 2012
(In thousands) |
|
|||||||||||||||||||||||||||||||||
Successor | Predecessor | |||||||||||||||||||||||||||||||||
October 1,
2012 to |
January 2,
2012 to |
|||||||||||||||||||||||||||||||||
December 28, | December 29, | December 30, | September 30, | |||||||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2012 | |||||||||||||||||||||||||||||||
Net sales |
$ | 202,233 | $ | 188,223 | $ | 40,341 | $ | 116,555 | ||||||||||||||||||||||||||
Costs and expenses: |
||||||||||||||||||||||||||||||||||
Cost of sales |
64,591 | 61,432 | 12,883 | 36,858 | ||||||||||||||||||||||||||||||
Restaurant labor and related costs |
61,539 | 59,032 | 12,785 | 38,050 | ||||||||||||||||||||||||||||||
Depreciation and amortization of restaurant property and equipment |
7,652 | 7,228 | 1,425 | 4,117 | ||||||||||||||||||||||||||||||
Other operating expenses |
40,440 | 39,016 | 7,849 | 23,175 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total restaurant operating expenses |
174,222 | 166,708 | 34,942 | 102,200 | ||||||||||||||||||||||||||||||
Transaction and integration expenses |
785 | (217) | 183 | 4,537 | ||||||||||||||||||||||||||||||
General and administrative expenses |
14,450 | 11,981 | 2,330 | 8,109 | ||||||||||||||||||||||||||||||
Asset impairment charges and restaurant closing costs |
5 | 2,094 | | | ||||||||||||||||||||||||||||||
Pre-opening expense |
681 | | | | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total operating expenses |
190,143 | 180,566 | 37,455 | 114,846 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Operating income |
12,090 | 7,657 | 2,886 | 1,709 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||
Interest expense |
(2,908) | (2,888) | (187) | (1,174) | ||||||||||||||||||||||||||||||
Gain on extinguishment of debt |
| 2,938 | | | ||||||||||||||||||||||||||||||
Stock option expense |
| | | (229) | ||||||||||||||||||||||||||||||
Other, net |
104 | 117 | 26 | 68 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total other income (expense) |
(2,804) | 167 | (161) | (1,335) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Income from continuing operations before income taxes |
9,286 | 7,824 | 2,725 | 374 | ||||||||||||||||||||||||||||||
Income tax (expense) benefit |
(328) | (138) | (1) | 79 | ||||||||||||||||||||||||||||||
Loss from discontinued operations, net |
(443) | (4,785) | (506) | (1,412) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Net income (loss) |
$ | 8,515 | $ | 2,901 | $ | 2,218 | $ | (959) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
J. ALEXANDERS HOLDINGS, LLC
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Statements of Membership Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Years ended December 28, 2014 and December 29, 2013 and periods from | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
October 1, 2012 to December 30, 2012 and from January 2, 2012 to September 30, 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Predecessor |
Outstanding
shares |
Common
stock |
Additional
paid-in capital |
Retained
earnings |
FNF | FNH | Newport |
Other
Minority Investors |
Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at January 1, 2012 |
5,993,453 | $ | 300 | $ | 34,581 | $ | 14,904 | $ | | $ | | $ | | $ | | $ | 49,785 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation |
| | 792 | | | | | | 792 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
42,553 | 2 | 251 | | | | | | 253 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of outstanding stock options |
| | (7,643) | | | | | | (7,643) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax benefit of option repurchase |
| | 280 | | | | | | 280 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other |
(218) | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | (959) | | | | | (959) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2012 |
6,035,788 | $ | 302 | $ | 28,261 | $ | 13,945 | $ | | $ | | $ | | $ | | $ | 42,508 | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Successor |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of Predecessor common stock and additional paid-in capital and elimination of Predecessor retained earnings |
(6,035,788) | (302) | (28,261) | (13,945) | | | | | (42,508) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Establishment of membership interest |
| | | | 87,519 | | | | 87,519 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at October 1, 2012 |
| $ | | $ | | $ | | $ | 87,519 | $ | | $ | | $ | | $ | 87,519 | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Contributions of capital |
| | | | 1,657 | | | | 1,657 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
| | | | 2,218 | | | | 2,218 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at December 30, 2012 |
| $ | | $ | | $ | | $ | 91,394 | $ | | $ | | $ | | $ | 91,394 | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Stoney River Contribution |
| | | | | 14,160 | | | 14,160 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distribution through note payable |
| | | | (20,000) | | | | (20,000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allocation of membership interests in conjunction with the contribution |
| | | | (9,647) | 9,647 | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
| | | | 2,029 | 872 | | | 2,901 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at December 29, 2013 |
| $ | | $ | | $ | | $ | 63,776 | $ | 24,679 | $ | | $ | | $ | 88,455 | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||
FNH distribution of membership interests |
| | | | 14,504 | (26,371) | 10,258 | 1,609 | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax distributions |
| | | | (64) | (15) | (2) | | (81) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
| | | | 6,507 | 1,707 | 260 | 41 | 8,515 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at December 28, 2014 |
| $ | | $ | | $ | | $ | 84,723 | $ | | $ | 10,516 | $ | 1,650 | $ | 96,889 | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
J. ALEXANDERS HOLDINGS, LLC | ||||||||||||||||
Consolidated Statements of Cash Flows | ||||||||||||||||
Years ended December 28, 2014 and December 29, 2013 and periods from | ||||||||||||||||
October 1, 2012 to December 30, 2012 and from January 2, 2012 to September 30, 2012 | ||||||||||||||||
(In thousands) | ||||||||||||||||
Successor | Predecessor | |||||||||||||||
|
December 28,
2014 |
|
|
December 29,
2013 |
|
|
October 1,
2012 to December 30, 2012 |
|
|
January 2,
2012 to September 30, 2012 |
|
|||||
Cash flows from operating activities: |
||||||||||||||||
Net income (loss) |
$ | 8,515 | $ | 2,901 | $ | 2,218 | $ | (959) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities |
||||||||||||||||
Depreciation and amortization of property and equipment |
7,946 | 7,530 | 1,536 | 4,418 | ||||||||||||
Amortization of lease assets and liabilities, deferred charges, and fair value of debt |
348 | (226) | (155) | 61 | ||||||||||||
Asset impairment charges |
| 4,240 | | | ||||||||||||
Gain on debt extinguishment |
| (2,938) | | | ||||||||||||
Share-based compensation expense |
| | | 792 | ||||||||||||
Excess tax benefits related to stock options exercised or repurchased |
| | | (280) | ||||||||||||
Deferred income taxes |
(277) | | | | ||||||||||||
Other, net |
172 | 405 | 63 | 218 | ||||||||||||
Changes in assets and liabilities: |
||||||||||||||||
Accounts and notes receivable |
102 | 722 | 90 | (322) | ||||||||||||
Inventories |
(194) | 132 | (280) | 109 | ||||||||||||
Prepaid expenses and other current assets |
155 | (82) | 574 | (954) | ||||||||||||
Accounts payable |
516 | 377 | (527) | 217 | ||||||||||||
Accrued expenses and other current liabilities |
(212) | 913 | 1,128 | (138) | ||||||||||||
Unearned revenue |
(565) | 407 | 820 | (736) | ||||||||||||
Deferred compensation obligations |
600 | 263 | 48 | 523 | ||||||||||||
Other assets and liabilities |
849 | 1,263 | 141 | 87 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by operating activities |
17,955 | 15,907 | 5,656 | 3,036 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from investing activities: |
||||||||||||||||
Purchase of property and equipment |
(10,536) | (6,610) | (1,159) | (2,535) | ||||||||||||
Other investing activities |
(157) | 484 | | (73) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities |
(10,693) | (6,126) | (1,159) | (2,608) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from financing activities: |
||||||||||||||||
Proceeds from borrowing under long-term debt agreement |
| 15,000 | | | ||||||||||||
Payments on long-term debt and obligations under capital leases |
(11,719) | (17,716) | (292) | (832) | ||||||||||||
Payments of debt issuance costs |
(75) | (123) | | | ||||||||||||
Repurchase of outstanding stock options |
| | | (7,643) | ||||||||||||
Proceeds from the exercise of stock options |
| | | 254 | ||||||||||||
Excess tax benefits related to stock options exercised or repurchased |
| | | 280 | ||||||||||||
Payment of offering costs |
(155) | | | | ||||||||||||
Other financing activities |
(81) | | 69 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in financing activities |
(12,030) | (2,839) | (223) | (7,941) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(Decrease) increase in cash and cash equivalents |
(4,768) | 6,942 | 4,274 | (7,513) | ||||||||||||
Cash and cash equivalents at beginning of period |
18,069 | 11,127 | 6,853 | 14,366 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash and cash equivalents at end of period |
$ | 13,301 | $ | 18,069 | $ | 11,127 | $ | 6,853 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Supplemental disclosures: |
||||||||||||||||
Property and equipment obligations accrued at beginning of period |
$ | 808 | $ | 489 | $ | 497 | $ | 225 | ||||||||
Property and equipment obligations accrued at end of period |
1,444 | 808 | 489 | 497 | ||||||||||||
Cash paid for interest |
5,010 | 1,199 | 363 | 1,127 | ||||||||||||
Cash paid for income taxes |
92 | 45 | 1 | 579 | ||||||||||||
Noncash related-party note accounted for as a distribution of capital |
| 20,000 | | | ||||||||||||
Noncash deferred offering costs accrued at end of period |
1,520 | | | |
See accompanying notes to consolidated financial statements.
F-6
Notes to Consolidated Financial Statements
(1) |
Organization and Business |
On September 26, 2012 (the J. Alexanders Acquisition Date), Fidelity National Financial, Inc. (FNF) acquired substantially all of the outstanding common stock of J. Alexanders Corporation, a publicly traded company, in a tender offer, followed by a merger (the J. Alexanders Acquisition), after which FNF owned all of the outstanding common stock of J. Alexanders Corporation. The outstanding shares of common stock were delisted and deregistered from the NASDAQ Global Select Market, and J. Alexanders Corporation was subsequently converted from a corporation to a limited liability company, J. Alexanders, LLC (the Operating Company), on October 30, 2012. The J. Alexanders Acquisition was treated as an acquisition for accounting purposes with FNF as the acquirer and J. Alexanders Corporation as the acquiree, and resulted in FNF owning a 100% interest in the Operating Company. Purchase accounting was applied as of October 1, 2012, as the four days between the purchase transaction and the beginning of the fourth quarter were not considered significant. FNF also contributed the ownership of the Operating Company to Fidelity National Special Opportunities, Inc. (FNSO), a wholly owned subsidiary of FNF, subsequent to the J. Alexanders Acquisition. FNSO was subsequently converted to Fidelity National Financial Ventures, LLC (FNFV). For purposes of these Consolidated Financial Statements, FNSO, FNFV and FNF are collectively referred to as FNF. References herein to operations and assets of J. Alexanders Holdings, LLC may also refer to its consolidated subsidiaries.
On February 6, 2013, J. Alexanders Holdings, LLC was formed as a Delaware limited liability company, and on February 25, 2013 (the Contribution Date), 100% of the membership interests of the Operating Company were contributed by FNF to J. Alexanders Holdings, LLC in exchange for a 72.1% membership interest in J. Alexanders Holdings, LLC. Additionally, on February 25, 2013, 100% of the membership interests of Stoney River Management Company, LLC and subsidiaries (Stoney River) were contributed by Fidelity Newport Holdings, LLC (FNH), a majority-owned subsidiary of FNF, to J. Alexanders Holdings, LLC in exchange for a 27.9% membership interest in J. Alexanders Holdings, LLC (the Contribution). J. Alexanders Holdings, LLC then contributed Stoney River to the Operating Company.
On May 6, 2014, FNF converted FNSO to FNFV. Other than certain tax consequences, this change in the organization of the entity holding a majority of the membership interests had no effect on the operations of J. Alexanders Holdings, LLC. On August 18, 2014, FNH distributed its 27.9% membership interest in J. Alexanders Holdings, LLC on a pro rata basis to the owners of the FNH membership interests. The distribution resulted in FNFV holding an 87.4% membership interest in J. Alexanders Holdings, LLC. Also after the distribution, Newport Global Opportunities Fund AIV-A LP holds a 10.9% membership interest in J. Alexanders Holdings, LLC, and the remaining 1.7% membership interests are held by other minority investors.
J. Alexanders Holdings, LLC, through the Operating Company and its subsidiaries, owns and operates full-service, upscale restaurants under the J. Alexanders and Stoney River Steakhouse and Grill concepts. At December 28, 2014 and December 29, 2013, restaurants operating within the J. Alexanders concept consisted of 31 and 30 restaurants, respectively, in 12 states, and restaurants operating within the Stoney River Steakhouse and Grill concept consisted of 10 locations within six states. At December 30, 2012, restaurants operating within the J. Alexanders concept consisted of 33 restaurants in 13 states, three of which were subsequently closed as discussed in note 3(c) below. The restaurants are concentrated primarily in the East, Southeast, and Midwest regions of the United States. J. Alexanders Holdings, LLC does not have any restaurants operating under franchise agreements.
F-7
On August 15, 2014, J. Alexanders Holdings, Inc., an affiliate of J. Alexanders Holdings, LLC, was incorporated in the state of Tennessee. On October 28, 2014, J. Alexanders Holdings, Inc. filed a registration statement on Form S-1 with the United States Securities and Exchange Commission relating to a proposed initial public offering of its common stock and a restructuring pursuant to which J. Alexanders Holdings, Inc. would become the managing member of J. Alexanders Holdings, LLC. On February 18, 2015, FNF announced its intentions to pursue a spin-off of J. Alexanders Holdings, LLC to shareholders of FNFV as an alternative to the structure in the proposed initial public offering of the J. Alexanders Holdings, Inc. common stock. The structure related to this proposed course of action is currently under evaluation.
(2) |
Summary of Significant Accounting Policies |
(a) |
Principles of Consolidation and Basis of Presentation |
The Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States (GAAP) and include the accounts of J. Alexanders Holdings, LLC as well as the accounts of its wholly owned subsidiaries. All intercompany profits, transactions, and balances have been eliminated. J. Alexanders Holdings, LLC is a majority-owned subsidiary of FNF.
Financial information through the J. Alexanders Acquisition Date is referred to as Predecessor company information, which has been prepared using the previous basis of accounting. The financial information for periods beginning October 1, 2012 is referred to as Successor company information and reflects the financial statement effects of recording fair value adjustments and the capital structure resulting from the J. Alexanders Acquisition. Unless the context otherwise requires, all references to Successor refer either to J. Alexanders, LLC or J. Alexanders Holdings, LLC for the periods subsequent to the J. Alexanders Acquisition Date. The Predecessor operated under a different ownership and capital structure and the application of acquisition accounting affects the comparability of results of operations for periods before and after the J. Alexanders Acquisition. Black lines have been drawn to separate the Successors financial information from that of the Predecessor.
(b) |
Fiscal Year |
The J. Alexanders Holdings, LLC fiscal year ends on the Sunday closest to December 31, and each quarter typically consists of 13 weeks. The period from January 2, 2012 to September 30, 2012, included 39 weeks of operations, and the period from October 1, 2012 to December 30, 2012, included 13 weeks of operations. Fiscal years 2014 and 2013 each included 52 weeks of operations.
(c) |
Discontinued Operations |
During the year ended December 29, 2013, three underperforming J. Alexanders restaurants were closed. The decision to close these restaurants was the result of an extensive review of the J. Alexanders restaurant portfolio that examined each restaurants recent and historical financial and operating performance, its position in the marketplace, and other operating considerations. Two of these restaurants were considered to be discontinued operations. The $443 loss from discontinued operations for fiscal 2014 consists solely of exit and disposal costs. For fiscal 2013, net sales from the closed restaurants included in discontinued operations were $1,941 and the loss was $4,785.
F-8
The loss consists of $2,657 in asset impairment charges, $1,827 of exit and disposal costs, and a loss from operations of $301. For the period October 1, 2012 through December 30, 2012, net sales related to these two locations and included in discontinued operations for comparative purposes were $1,314 and the loss was $506, all of which was from operations. For the period January 2, 2012 through September 30, 2012, net sales associated with these two restaurants were $4,306 and the loss was $1,412, all of which was from operations There were no related assets reclassified as held for sale related to these closures, as there were no significant remaining assets related to these locations subsequent to the asset impairment charges being recorded.
(d) |
Cash and Cash Equivalents |
Cash and cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. Cash also consists of payments due from third-party credit card issuers for purchases made by guests using the issuers credit cards. The issuers typically remit payment within three to four days of a credit card transaction.
(e) |
Accounts and Notes Receivable |
Accounts receivable are primarily related to income taxes due from governmental agencies and vendor rebates, which have been earned but not yet received. Related-party accounts receivable relate to payments made by third-party gift card resellers to the previous operating company of Stoney River, which is owned by FNH, for the Stoney River gift card sales made through those distribution channels subsequent to the Contribution.
(f) |
Inventory |
Inventories are stated at the lower of cost or market, with cost being determined on a first-in, first-out basis.
(g) |
Property and Equipment, Net |
J. Alexanders Holdings, LLC states property and equipment at cost less accumulated depreciation and amortization. Depreciation and amortization expense is calculated using the straight-line method. The useful lives of assets are typically 3040 years for buildings and land improvements and two10 years for furniture, fixtures, and equipment. Leasehold improvements are amortized over the lesser of the useful life or the remaining lease term, generally inclusive of renewal periods. Equipment under capital leases is amortized to its expected residual value at the end of the lease term. Gains or losses are recognized upon the disposal of property and equipment, and the asset and related accumulated depreciation and amortization are removed from the accounts. Maintenance, repairs, and betterments that do not enhance the value of or increase the life of the assets are expensed as incurred. J. Alexanders Holdings, LLC capitalizes all direct external costs associated with obtaining the land, building, and equipment for each new restaurant, as well as construction period interest. All direct external costs associated with obtaining the dining room and kitchen equipment, signage, and other assets and equipment are also capitalized.
Certain direct and indirect costs are capitalized as building and leasehold improvement costs in conjunction with capital improvement projects at existing restaurants and acquiring and developing new restaurant sites. Such costs are amortized over the life of the related assets.
F-9
(h) |
Goodwill and Other Intangible Assets |
Goodwill represents the excess of cost over fair value of net assets acquired in the J. Alexanders Acquisition. Intangible assets include trade names, deferred loan costs, and liquor licenses at certain restaurants. Goodwill, trade names, and liquor licenses are not subject to amortization, but are tested for impairment annually as of the fiscal year-end date, or more frequently, if events or changes in circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount of the goodwill or indefinite-lived intangible asset exceeds its fair value.
J. Alexanders Holdings, LLC performed the fiscal 2014 annual review of goodwill in accordance with Accounting Standards Update (ASU) 2011-08, Testing Goodwill for Impairment , which allows for the performance of a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. The qualitative assessment includes an analysis of macroeconomic factors, industry and market conditions, internal cost factors, overall financial performance and entity-specific events. ASU 2012-02, Testing Indefinite-lived Intangible Assets for Impairment , also provides an entity the option to perform a qualitative assessment with regard to the testing of its indefinite-lived intangible assets. J. Alexanders Holdings, LLC performed the fiscal 2014 annual review of impairment for its indefinite-lived intangibles in accordance with this guidance. It was determined that no impairment of goodwill or indefinite-lived intangible assets existed as of December 28, 2014, December 29, 2013 or December 30, 2012, and accordingly, no impairment losses were recorded.
Deferred loan costs are subject to amortization and are classified in the Deferred Charges line item on the Consolidated Balance Sheets. Deferred loan costs are amortized principally by the interest method over the life of the related debt. For the next five fiscal years, scheduled amortization of deferred loan costs is as follows: 2015 $55; 2016 $53; 2017 $51; 2018 $51; 2019 and thereafter $61.
(i) |
Impairment of Long-Lived Assets |
Long-lived assets, such as property and equipment and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, an impairment charge may be recognized for the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group based upon the future highest and best use of the impaired asset or asset group. Fair value is determined by projected future discounted cash flows for each location or the estimated market value of the assets. The asset impairment charges are generally recorded in the Consolidated Statements of Operations in the financial statement line item Asset impairment charges and restaurant closing costs, but are also recorded in the line item Loss from discontinued operations, net when applicable. Assets to be disposed of are separately presented in the Consolidated Balance Sheets and reported at the lower of carrying amount or fair value less costs to sell, and are no longer depreciated.
F-10
In accordance with Accounting Standards Codification (ASC) Topic 360, Property, Plant, and Equipment , and in connection with the preparation of the J. Alexanders Holdings, LLC financial statements for fiscal year 2013, long-lived assets held and used associated with three underperforming J. Alexanders restaurants with a carrying amount of $4,240 were written down to their fair value of $0 resulting in an impairment charge of $4,240 being included in net income for the year ended December 29, 2013. Approximately $2,657 of the total impairment charge was related to the two locations that were determined to be discontinued operations, and the remaining $1,583 associated with the third location is presented in the Asset impairment charges and restaurant closing costs line item. Each restaurant was closed during fiscal 2013 and long-lived assets were either impaired and disposed of as of the date on which the restaurant ceased operations or transferred to other locations.
No impairment charges were recorded for the year ended December 28, 2014 or for the period October 1, 2012 through December 30, 2012 or the period January 2, 2012 through September 30, 2012.
(j) |
Operating Leases |
J. Alexanders Holdings, LLC has land only, building only, and land and building leases that are recorded as operating leases. Most of the leases have rent escalation clauses and some have rent holiday and contingent rent provisions. The rent expense under these leases is recognized on the straight-line basis over an expected lease term, including cancelable option periods when it is reasonably assured that such option periods will be exercised because failure to do so would result in a significant economic penalty. J. Alexanders Holdings, LLC begins recognizing rent expense on the date that it becomes legally obligated under the lease and takes possession of or is given control of the leased property. Rent expense incurred during the construction period for a leased restaurant location is included in pre-opening expense. Contingent rent expense is based upon sales levels and is typically accrued when it is deemed probable that it will be payable. Tenant improvement allowances received from landlords under operating leases are recorded as deferred rent obligations.
The same lease life that is used for the straight-line rent calculation is also used for assessing leases for capital or operating lease accounting.
(k) |
Revenue Recognition |
Restaurant revenues are recognized when food and service are provided. Unearned revenue represents the liability for gift cards, which have been sold but not redeemed. Upon redemption, net sales are recorded and the liability is reduced by the amount of card values redeemed. Reductions in liabilities for gift cards that, although they do not expire, are considered to be only remotely likely to be redeemed and for which there is no legal obligation to remit balances under unclaimed property laws of the relevant jurisdictions (breakage), have been recorded as revenue and are included in net sales in the Consolidated Statements of Operations. Based on historical experience, management considers the probability of redemption of a gift card to be remote when it has been outstanding for 24 months.
J. Alexanders Holdings, LLC records breakage related to sold gift cards when the likelihood of redemption becomes remote. During the second quarter of 2014,
F-11
J. Alexanders Holdings, LLC obtained sufficient information to reliably estimate breakage associated with Stoney River gift cards under this policy and recorded breakage as a component of net sales and reduced the associated unearned revenue liability by the same amount. Breakage of $772, $213, $145 and $26 related to gift cards was recorded in fiscal 2014, fiscal 2013, the period October 1, 2012 through December 30, 2012, and the period January 2, 2012 through September 30, 2012, respectively.
(l) |
Vendor Rebates |
Vendor rebates are received from various nonalcoholic beverage suppliers, and to a lesser extent, suppliers of food products and supplies. Rebates are recognized as a reduction to cost of sales in the period in which they are earned.
(m) |
Advertising Costs |
Costs of advertising are charged to expense at the time the costs are incurred. Advertising expense totaled $203, $510, $19 and $52 during fiscal year 2014, fiscal year 2013, the period October 1, 2012 through December 30, 2012, and the period January 2, 2012 through September 30, 2012, respectively.
(n) |
Transaction and Integration Costs |
J. Alexanders Holdings, LLC has historically grown through improving operations, food quality and the guest experience. However, during the periods presented as discussed above in note 1, both the J. Alexanders Acquisition and the Contribution transactions occurred, resulting in certain nonrecurring transaction and integration costs being incurred. During the year ended December 29, 2013, and the periods from October 1, 2012 through December 30, 2012, and January 2, 2012 through September 30, 2012, respectively, transaction and integration costs of approximately $189, $183 and $4,537 were incurred. In fiscal 2013, J. Alexanders Holdings, LLC received $406 in insurance proceeds from its insurance carrier under its directors and officers liability policy for costs previously incurred relating to certain shareholder litigation, which is netted against the $189 of transaction costs incurred, resulting in income of $(217) being presented for the 2013 period.
Also, during fiscal 2014, transaction and integration costs of approximately $785 were incurred related to the ongoing offering transaction as indirect costs. Transaction costs typically consist primarily of legal and consulting costs, accounting fees, accelerated expense associated with repurchased stock options, and to a lesser extent other professional fees and miscellaneous costs. Integration costs typically consist primarily of consulting and legal costs.
(o) |
Deferred Offering Costs |
Deferred offering costs, which primarily consist of direct, incremental legal and accounting fees relating to the pursuit of an initial public offering, are capitalized within other current assets. Such deferred offering costs would be offset against proceeds upon the consummation of an offering. In the event the offering is terminated, deferred offering costs will be expensed. J. Alexanders Holdings, LLC has incurred $1,675 in such costs as of December 28, 2014.
F-12
(p) |
Income Taxes |
J. Alexanders Holdings, LLC is a limited liability company. For federal and most state and local taxing jurisdictions, the revenues, expenses, and credits of a limited liability company are allocated to its members. For federal and most state and local taxing jurisdictions, which would comprise the majority of the J. Alexanders Holdings, LLC filing jurisdictions, no provision, assets or liabilities have been recorded in the accompanying Consolidated Financial Statements for these specific jurisdictions since the conversion to a limited liability company. However, J. Alexanders Holdings, LLC has a significant presence in the state of Tennessee and other local jurisdictions, which requires it to file income tax returns.
For those jurisdictions in which income tax returns must be filed, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized.
The benefits of uncertain tax positions are recognized in the financial statements only after determining a more-likely than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. When facts and circumstances change, these probabilities are reassessed and any appropriate changes are recorded in the financial statements. Uncertain tax positions are accounted for by determining the minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. This determination requires the use of judgment in assessing the timing and amounts of deductible and taxable items. Tax positions that meet the more-likely than-not recognition threshold are recognized and measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. Interest and penalties accrued related to unrecognized tax benefits or income tax settlements are recognized as components of income tax expense.
(q) |
Concentration of Credit Risk |
Financial instruments that are potentially exposed to a concentration of credit risk are cash and cash equivalents and accounts receivable. Operating cash balances are maintained in noninterest-bearing transaction accounts, which are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250. Additionally, J. Alexanders Holdings, LLC invests cash in a money market fund, which invests primarily in U.S. Treasury securities and is also insured by the FDIC up to $250. J. Alexanders Holdings, LLC places cash with high-credit-quality financial institutions, and at times, such cash may be in excess of the federally insured limit. However, there have been no losses experienced related to these balances, and the credit risk is believed to be minimal. Also, J. Alexanders Holdings, LLC believes that its risk related to cash equivalents from third-party credit card issuers for purchases made by guests using the issuers credit cards is not significant due to the
F-13
number of banks involved and the fact that payment is typically received within three to four days of a credit card transaction. Therefore, J. Alexanders Holdings, LLC does not believe it has significant risk related to its cash and cash equivalents accounts. Concentrations of credit risk with respect to accounts receivable are related principally to receivables from governmental agencies related to refunds of franchise and income taxes. J. Alexanders Holdings, LLC does not believe it has significant risk related to accounts receivable due to the nature of the entities involved.
(r) |
Use of Estimates |
Management has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the periods presented to prepare these Consolidated Financial Statements in conformity with GAAP. Significant items subject to such estimates and assumptions include those related to the accounting for gift card breakage, estimates of useful lives of property and equipment and leasehold improvements, the carrying amount of intangible assets, fair market valuations, determination of lease terms, and accounting for impairment losses, contingencies, and litigation. Actual results could differ from these estimates.
(s) |
Sales Taxes |
Revenues are presented net of sales taxes. The obligation for sales taxes is included in accrued expenses and other current liabilities until the taxes are remitted to the appropriate taxing authorities.
(t) |
Pre-opening Expense |
Pre-opening costs are accounted for by expensing such costs as they are incurred.
(u) |
Comprehensive Income |
Total comprehensive income or loss is comprised solely of net income or net loss for all periods presented.
(v) |
Segment Reporting |
J. Alexanders Holdings, LLC owns and operates full-service, upscale restaurants under two concepts exclusively in the United States that have similar economic characteristics, products and services, class of customer and distribution methods. J. Alexanders Holdings, LLC believes it meets the criteria for aggregating its operating segments into a single reportable segment.
(w) |
Recently Issued Accounting Standards |
In April 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . ASU No. 2014-08 changes the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entitys
F-14
operations and financial results. Under current GAAP, many disposals, some of which may be routine in nature and not a change in an entitys strategy, are reported in discontinued operations. Additionally, the amendments in this ASU require expanded disclosures for discontinued operations. The amendments in this ASU also require an entity to disclose the pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. The ASU is effective for annual financial statements with years that begin on or after December 15, 2014. J. Alexanders Holdings, LLC will adopt this guidance in fiscal year 2015 and does not expect a significant impact on its Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers . The core principle of the standard is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU will replace most existing revenue recognition guidance in GAAP. New qualitative and quantitative disclosure requirements aim to enable financial statement users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective for annual periods beginning after December 15, 2016. Early adoption is not permitted. The ASU permits the use of either the retrospective or cumulative effect transition method. J. Alexanders Holdings, LLC has not yet selected a transition method or determined the effect, if any, that this ASU will have on its Consolidated Financial Statements and related disclosures.
(3) |
Significant Transactions |
(a) |
J. Alexanders Acquisition |
On the J. Alexanders Acquisition Date, FNF acquired substantially all of the outstanding common stock of J. Alexanders Corporation. The fair value of the equity was $87,519. Purchase accounting was applied to the net assets of the acquiree as of October 1, 2012, as the time and activity between the J. Alexanders Acquisition Date and the beginning of the fourth quarter of 2012 was not considered significant.
The purchase price was allocated to net tangible and identifiable intangible assets and liabilities based on their estimated fair values. Management prepared the purchase price allocations and utilized valuations provided by third-party experts. Management reviewed and evaluated the third-party valuations to ensure the reasonableness and accuracy of the assumptions used to determine the fair values. The fair value of the liquor licenses was estimated using a market approach. The fair value of the trade names was estimated using an income approach, specifically known as the relief from royalty method. The relief from royalty method calculates the approximate royalty saved that is attributable to the sale of products and services using the trade names. The forecasted revenues expected to be generated under the trade names were based on the projected revenues of the respective company-owned restaurants.
Discount rates applied to the estimated cash flows for intangible assets acquired ranged from 13% to 15%, depending on the overall risk associated with the particular cash flow stream and other market factors. The discount rates used are believed to be consistent with those that a market participant would use. These approaches use significant estimates and assumptions including projected future cash flows, discount rates reflecting
F-15
the risk inherent in future cash flows, perpetual growth rates, determination of appropriate market comparables, and the determination of whether a premium or discount should be applied to the market comparables.
The fair value of either a favorable lease asset or an unfavorable lease liability was also recognized representing the difference between the market rates in effect compared to the various lease payments on individual operating leases. These assets and liabilities are amortized to rent expense on a straight-line basis over each respective operating lease term. Net amortization expense to rent from operations for the period from October 1, 2012 through December 30, 2012 was $25, and for fiscal years 2013 and 2014 was $100 and $90, respectively, for J. Alexanders concept leases. Additionally, the period from October 1, 2012 through December 30, 2012 included $8 in net amortization income from discontinued operations, and fiscal year 2013 included $342 in net amortization income from discontinued operations. The 2013 discontinued operations amount included a write-off of one restaurants unfavorable lease liability and one restaurants favorable lease asset, which totals $334 of the $342 in net amortization income, as further discussed in note 2(c) above. There was no impact to the loss from discontinued operations related to the amortization of these assets and liabilities in fiscal 2014.
To determine the fair values of the land, buildings, improvements, and equipment, valuations provided by third-party experts were utilized. Management reviewed and evaluated the third-party valuations to ensure the reasonableness and accuracy of the assumptions used to determine the fair values. The fair values of the owned restaurant land and buildings were estimated using a sales comparison approach. The fair values of the leasehold improvements and equipment were estimated using a replacement cost approach. Also, the fair value of point-of-sale software and restaurant smallwares was estimated using a replacement cost approach.
The fair value associated with mortgage debt was determined based on an estimated market rate for debt with similar terms provided by a third party. Because the estimated market rate was less than that of the existing mortgage rate, a fair value adjustment to increase the debt balance by $3,473 was recorded, and the fair value adjustment was amortized as a reduction to interest expense based on the effective-interest method over the remaining life of the mortgage debt. For fiscal 2013, $360 was recorded as a reduction to interest expense, and for the period October 1, 2012 through December 30, 2012, $175 was recorded as a reduction to interest expense. This mortgage debt was refinanced on September 3, 2013, and a gain for the remaining balance of the fair value adjustment of $2,938 was recorded upon extinguishment.
F-16
The purchase price allocation was completed in 2012, and therefore, the measurement period for the transaction was closed as of December 30, 2012. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the J. Alexanders Acquisition Date:
October 1,
2012 |
||||
Consideration |
$ | 87,519 | ||
Fair value of assets and current liabilities: |
||||
Net current liabilities (includes cash of $6,853) |
(2,564 | ) | ||
Property, plant, and equipment |
74,944 | |||
Purchased software |
136 | |||
Favorable operating lease |
1,634 | |||
Other noncurrent assets |
1,897 | |||
Identified intangible assets: |
||||
Trade names |
23,600 | |||
Liquor licenses |
102 | |||
|
|
|||
Total assets and current liabilities acquired |
99,749 | |||
|
|
|||
Fair value of noncurrent liabilities: |
||||
Long-term mortgage debt |
19,852 | |||
Unfavorable operating lease |
1,761 | |||
Deferred tax liability |
1,588 | |||
Other noncurrent liabilities |
4,766 | |||
|
|
|||
Total noncurrent liabilities assumed |
27,967 | |||
|
|
|||
Goodwill |
$ | 15,737 | ||
|
|
The deferred tax liability of $1,588 was recorded on the Consolidated Balance Sheet as of October 1, 2012, but was subsequently distributed to FNF upon the conversion of the Operating Company to a limited liability company. Subsequent to the J. Alexanders Acquisition Date and concurrent with the Contribution Date, J. Alexanders Holdings, LLC also distributed $20,000 to FNF in the form of a note payable.
(b) |
Stoney River Contribution |
On February 25, 2013, the assets of Stoney River were contributed by FNH to J. Alexanders Holdings, LLC in exchange for a 27.9% membership interest in the consolidated J. Alexanders Holdings, LLC entity. This transaction was between entities under the common control of FNF. Therefore, the business combination accounting guidance in ASC Topic 805, Business Combinations , did not apply, and no purchase accounting procedures were necessary. Rather, the assets of Stoney River were measured at their carrying amounts as of the date of transfer and the results of operations are presented prospectively as this was not considered a change in reporting entity. The Consolidated Statement of Operations for fiscal year 2013 includes 10 months of operations of the 10 Stoney River restaurants.
F-17
The following table summarizes the carrying values of the assets of Stoney River as of the Contribution Date that were transferred to J. Alexanders Holdings, LLC:
February 25,
2013 |
||||||||
Current assets (includes cash of $561) |
$ | 1,192 | ||||||
Fixed assets, net of accumulated depreciation of $1,161 |
14,000 | |||||||
Trade names |
1,453 | |||||||
Favorable operating lease, net of $288 in accumulated amortization |
1,731 | |||||||
Other noncurrent assets |
2 | |||||||
|
|
|||||||
Total assets contributed |
18,378 | |||||||
|
|
|||||||
Current liabilities |
3,178 | |||||||
Unfavorable operating lease, net of $134 in accumulated amortization |
834 | |||||||
Deferred tax liability |
21 | |||||||
Other noncurrent liabilities |
185 | |||||||
|
|
|||||||
Total liabilities assumed |
4,218 | |||||||
|
|
|||||||
Equity contributed |
$ | 14,160 | ||||||
|
|
The net amortization to rent expense from operations of the favorable lease asset and the unfavorable lease liability in fiscal 2013 for the Stoney River restaurants totaled $140, and in fiscal 2014 totaled $187.
(c) |
Restaurant Closures |
As disclosed in notes 2(c) and (i) above, during fiscal 2013, three underperforming J. Alexanders restaurants were closed. At the time the decision to close the restaurants was made, each was analyzed for asset impairment, and each was determined to be an impaired location and the related long-lived assets with a carrying amount of $4,240 were written down to their fair value of $0, resulting in an impairment charge of $4,240 being included in net income for the year ended December 29, 2013. Approximately $2,657 of the total impairment charge was related to the two locations that were determined to be discontinued operations, and the remaining $1,583 associated with the third location is presented in the Asset impairment charges and restaurant closing costs line item.
In addition to asset impairment charges, restaurant closing costs of $2,338 were incurred in fiscal 2013, $1,827 of which related to the two locations determined to be discontinued operations. The remaining $511 associated with the third location is presented in the Asset impairment charges and restaurant closing costs line item. Restaurant closing costs consisted largely of accruals of remaining rent payments, net of estimated or actual subleases, and the liabilities for the remaining payments are reflected within the Other long-term liabilities line item. Additionally, brokerage fees, lease break payments, and moving and travel costs are included in restaurant closing costs. During fiscal 2014, restaurant closing costs totaled $448, $443 of which related to locations included in discontinued operations and consisted of ongoing rental payments, utilities, insurance and other costs to maintain the closed locations.
F-18
(4) |
Fair Value Measurements |
J. Alexanders Holdings, LLC utilizes the following fair value hierarchy, which prioritizes the inputs into valuation techniques used to measure fair value. Accordingly, it uses valuation techniques which maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value. The three levels of the hierarchy are as follows:
Level 1 |
Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities. |
|
Level 2 |
Defined as observable inputs other than Level 1 prices. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|
Level 3 |
Defined as unobservable inputs for which little or no market data exists, therefore, requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. |
In connection with the J. Alexanders Acquisition in 2012, assets and liabilities were recorded at their estimated fair values on the effective date of the transaction. See note 3 above for additional discussion relative to the approach for determining the fair values of assets and liabilities recorded at that time.
There were no significant assets or liabilities measured at fair value on a recurring basis during fiscal years 2013 or 2014.
The recorded amounts for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other current liabilities approximate fair value due to their short-term nature.
(5) |
Prepaid Expenses and Other Current Assets |
Prepaid expenses and other current assets consisted of the following:
December 28,
2014 |
December 29,
2013 |
|||||||||||||||
Prepaid insurance |
$ | 439 | $ | 685 | ||||||||||||
Prepaid rent |
689 | 597 | ||||||||||||||
Deferred offering costs |
1,675 | | ||||||||||||||
Other |
200 | 201 | ||||||||||||||
|
|
|
|
|||||||||||||
Prepaid expenses and other current assets |
$ | 3,003 | $ | 1,483 | ||||||||||||
|
|
|
|
F-19
(6) |
Property and Equipment, Net |
Property and equipment, net consisted of the following:
December 28,
2014 |
December 29,
2013 |
|||||||||||||||
Land |
$ | 20,204 | $ | 20,204 | ||||||||||||
Buildings |
26,328 | 25,273 | ||||||||||||||
Leasehold improvements |
37,961 | 32,292 | ||||||||||||||
Restaurant and other equipment |
17,892 | 14,573 | ||||||||||||||
Construction in progress |
1,540 | 808 | ||||||||||||||
|
|
|
|
|||||||||||||
103,925 | 93,150 | |||||||||||||||
Less accumulated depreciation |
(17,662 | ) | (9,934 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Property and equipment, net |
$ | 86,263 | $ | 83,216 | ||||||||||||
|
|
|
|
For fiscal years 2014 and 2013, depreciation expense from continuing operations was $7,946 and $7,456, respectively. For the periods October 1, 2012 through December 30, 2012 and January 2, 2012 through September 30, 2012, depreciation expense from continuing operations was $1,448 and $4,152, respectively. The loss on disposition of assets from continuing operations included in the Other operating expenses line item, primarily related to the refreshing of assets through store remodels, was $179, $404, $61 and $218 for fiscal year 2014, fiscal year 2013, the period October 1, 2012 through December 30, 2012, and the period January 2, 2012 through September 30, 2012, respectively. In addition to the above amounts, there was depreciation expense included in discontinued operations of $74, $88 and $266 for the year ended December 29, 2013, the period October 1, 2012 through December 30, 2012, and the period January 2, 2012 through September 30, 2012, respectively.
In connection with the preparation of the Consolidated Financial Statements for fiscal year 2013, long-lived assets with a carrying amount of $4,240 were written off resulting in an impairment charge of $4,240, which was included in net income for the year ended December 29, 2013. Fair value is generally determined using projected future discounted cash flows for each restaurant location combined with the estimated salvage value of each restaurants furnishings, fixtures, and equipment. The discount rate is the estimated weighted average cost of capital, which management believes is commensurate with the required rate of return that a potential buyer would expect to receive when purchasing a similar restaurant and the related long-lived assets. Assumptions about important factors such as sales and margin change are limited to those that are supportable based upon managements plans for the restaurant. As these associated restaurants were closed and assets were disposed of upon closure, fair value was determined to be $0 for these associated locations. No impairment charges were recorded during fiscal 2014 or in either period presented for 2012.
(7) |
Goodwill and Indefinite-Lived Intangible Assets |
Intangible assets consisted of the following:
December 28,
2014 |
December 29,
2013 |
|||||||||||||||
Goodwill |
$ | 15,737 | $ | 15,737 | ||||||||||||
Trade name |
25,053 | 25,053 | ||||||||||||||
Liquor licenses |
102 | 102 | ||||||||||||||
|
|
|
|
|||||||||||||
Intangible assets |
$ | 40,892 | $ | 40,892 | ||||||||||||
|
|
|
|
F-20
(8) |
Other Assets |
Other assets consisted of the following:
December 28,
2014 |
December 29,
2013 |
|||||||||||||||
Favorable operating leases, net |
$ | 1,835 | $ | 2,520 | ||||||||||||
Cash surrender value of life insurance |
1,871 | 1,806 | ||||||||||||||
Deferred tax assets |
256 | | ||||||||||||||
Other |
443 | 305 | ||||||||||||||
|
|
|
|
|||||||||||||
Other assets |
$ | 4,405 | $ | 4,631 | ||||||||||||
|
|
|
|
(9) |
Accrued Expenses and Other Current Liabilities |
Accrued expenses and other current liabilities consisted of the following:
December 28,
2014 |
December 29,
2013 |
|||||||
Taxes, other than income taxes |
$ | 3,611 | $ | 3,365 | ||||
Income taxes |
203 | 14 | ||||||
Salaries, wages, vacation, and incentive compensation |
4,538 | 3,464 | ||||||
Deferred offering costs and transaction costs |
2,127 | | ||||||
Other |
1,535 | 1,704 | ||||||
|
|
|
|
|||||
Accrued expenses and other current liabilities |
$ | 12,014 | $ | 8,547 | ||||
|
|
|
|
(10) |
Debt |
Debt and obligations under capital leases consisted of the following:
In 2009, a bank loan agreement was obtained that provided for a three-year $5,000 revolving line of credit, which could be used for general corporate purposes and expired on May 22, 2012. The loan was refinanced as a $6,000 line of credit with substantially similar terms on June 27, 2012. The revolving line of credit was secured by liens on certain personal property, subsidiary guaranties, and a negative pledge on certain real property.
On September 3, 2013, a mortgage loan obtained in 2002 was paid off. At that time, the previous line of credit agreement was also refinanced, and a new $16,000 bank loan that provides two new credit facilities was obtained. The borrower under this loan agreement was J. Alexanders, LLC, and the loan was guaranteed by J. Alexanders Holdings, LLC and all significant
F-21
subsidiaries. These new credit facilities consisted of a three-year $1,000 revolving line of credit, which replaced the previous line of credit and may be used for general corporate purposes, and a seven-year $15,000 term loan with monthly principal payments of $139 plus interest. The credit facilities are secured by liens on certain personal property of J. Alexanders Holdings, LLC and its subsidiaries, subsidiary guaranties, and a mortgage lien on certain real property. At the time of the refinancing, there were no unamortized deferred loan costs which had previously been capitalized with regard to either the existing term loan or the existing revolving line of credit. Further, there were no borrowed balances outstanding under the previous line of credit.
The refinancing was accounted for as a debt extinguishment as an alternative lender was selected with respect to the term loan. A $2,938 gain relative to the transaction was recorded as the reacquisition price was less than the carrying amount of the debt as of the date of refinancing, which was due to the fact that the carrying amount of the debt included an adjustment made in purchase accounting to record the mortgage debt at fair value. In connection with the transaction, lender and legal fees in the amount of $123 were incurred, which were capitalized as deferred loan costs and are being amortized over the respective lives of the promissory notes.
On December 9, 2014, J. Alexanders, LLC executed an Amended and Restated Loan Agreement (the Loan Agreement) which encompasses the two existing credit facilities discussed above dated September 3, 2013 and also includes a five-year $15,000 development line of credit. These credit facilities remain secured by the collateral package and guaranties described above in connection with the two credit facilities dated September 3, 2013. In addition, the lender is entitled to a first priority security interest in three additional restaurants in the event the term loan remains outstanding as of June 9, 2015. In connection with the transaction, lender and legal fees in the amount of $175 were incurred, which were capitalized as deferred loan costs and are being amortized over the life of the development line of credit.
In connection with the Contribution, J. Alexanders Holdings, LLC entered into a $20,000 note payable to FNF (the FNF Note), which was accounted for as a distribution of capital. The note accrues interest at 12.5% annually, and the interest and principal are payable in full on January 31, 2016. Under the terms of the term loan dated September 3, 2013, the FNF Note was subordinated to the term debt. The Loan Agreement included a provision whereby, as long as there were no outstanding events of default, the entire FNF Note could be repaid with proceeds from the ongoing offering transaction and up to $10,000 of the debt associated with the FNF Note could be prepaid regardless of whether the offering transaction were to occur. On December 15, 2014, a payment of $14,569, representing $10,000 of principal on the FNF Note and $4,569 of accrued interest, was made to FNF.
Any amount borrowed under the $1,000 revolving credit facility bears interest at an annual rate of 30-day LIBOR plus a margin equal to 2.50%, with a minimum interest rate of 3.25% per annum. The term loan bears interest at an annual rate of 30-day LIBOR plus a margin equal to 2.50%, with a minimum and maximum interest rate of 3.25% and 6.25% per annum, respectively. Any amount borrowed under the $15,000 development line of credit bears interest at an annual rate of 30-day LIBOR plus a margin equal to 2.20%. The Loan Agreement, among other things, permits payments of tax dividends to members, limits capital expenditures, asset sales and liens and encumbrances, limits dividends, and contains certain other provisions customarily included in such agreements. In addition, dividends may be paid under a formula consisting of a $5,725 base, which amount will be increased annually by $2,500 plus 25% of consolidated net income for the immediately preceding year, beginning with the year which ended December 28, 2014, and reduced by the aggregate amount of such dividends previously paid, if any, from the Loan Agreements inception through the measurement date.
F-22
The Loan Agreement also includes certain financial covenants. A fixed charge coverage ratio of at least 1.25 to 1 as of the end of any fiscal quarter based on the four quarters then ending must be maintained. The fixed charge coverage ratio is defined in the Loan Agreement as the ratio of (a) the sum of net income for the applicable period (excluding the effect on such period of any extraordinary or nonrecurring gains or losses, including any asset impairment charges, restaurant closing expenses (including lease buy-out expenses), changes in valuation allowance for deferred tax assets, and noncash deferred income tax benefits and expenses and up to $1,000 (in the aggregate for the term of the loans) in uninsured losses) plus depreciation and amortization plus interest expense plus rent payments plus noncash compensation expense plus any other noncash expenses or charges and plus expenses associated with the initial public offering of equity securities of J. Alexanders Holdings, Inc., regardless of whether the transaction occurs or is delayed, minus the greater of either actual total store maintenance capital expenditures (excluding major remodeling or image enhancements) or the total number of stores in operation for at least 18 months multiplied by $40, to (b) the sum of interest expense during such period plus rent payments made during such period plus payments of long-term debt and capital lease obligations made during such period, all determined in accordance with GAAP.
In addition, the maximum adjusted debt to EBITDAR ratio must not exceed 4.0 to 1 at the end of any fiscal quarter. Under the Loan Agreement, EBITDAR is measured based on the then-ending four fiscal quarters and is defined as the sum of net income for the applicable period (excluding the effect on such period of any extraordinary or nonrecurring gains or losses, including any asset impairment charges, restaurant closing expenses (including lease buy-out expenses), changes in valuation allowance for deferred tax assets and noncash deferred income tax benefits and expenses and up to $1,000 (in the aggregate for the term of the loans) in uninsured losses) plus an amount that in the determination of net income for the applicable period has been deducted for (i) interest expense; (ii) total federal, state, foreign, or other income taxes; (iii) all depreciation and amortization; (iv) rent payments; and (v) noncash compensation expenses, plus any other noncash expenses or charges and plus expenses associated with the ongoing offering transaction, regardless of whether the transaction occurs or is delayed, all as determined in accordance with GAAP. Adjusted debt is (i) funded debt obligations net of any short-term investments, cash and cash equivalents plus (ii) rent payments multiplied by seven. For purposes of calculating the financial covenants, the FNF Note and related interest expense are excluded from the calculations.
If an event of default shall occur and be continuing under the Loan Agreement, the commitment under the Loan Agreement may be terminated and any principal amount outstanding, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable. J. Alexanders, LLC was in compliance with these financial covenants as of December 28, 2014 and for all reporting periods during the year then ended.
No amounts were outstanding under the revolving line of credit at December 28, 2014. The loan is secured by the real estate, equipment and other personal property of nine of the J. Alexanders restaurant locations with an aggregate net book value of $24,779 as of December 28, 2014. The real property at these locations is owned by JAX Real Estate, LLC, a wholly owned subsidiary of J. Alexanders LLC.
Deferred loan costs are $271 and $120, net of accumulated amortization expense of $28 and $3 at December 28, 2014 and December 29, 2013, respectively. Deferred loan costs are being amortized to interest expense using the effective-interest method over the life of the related debt.
F-23
The carrying value of the debt balance under the term loan at December 28, 2014 and December 29, 2013 is considered to approximate its fair value because of the proximity of the debt refinancing discussed above to the 2014 and 2013 fiscal year-ends.
The aggregate maturities of long-term debt for the five fiscal years succeeding December 28, 2014 are as follows: 2015 $1,671; 2016 $11,667; 2017 $1,667; 2018 $1,667; 2019 $1,667; and $4,582 thereafter.
(11) |
Other Long-Term Liabilities |
Other long-term liabilities consisted of the following:
December 28,
2014 |
December 29,
2013 |
|||||||||||||||
Deferred rent |
$ | 2,625 | $ | 2,024 | ||||||||||||
Unfavorable lease liabilities, net |
1,255 | 1,662 | ||||||||||||||
Uncertain tax positions |
346 | | ||||||||||||||
Other noncurrent liabilities |
26 | 69 | ||||||||||||||
|
|
|
|
|||||||||||||
Other long-term liabilities |
$ | 4,252 | $ | 3,755 | ||||||||||||
|
|
|
|
(12) |
Leases |
At December 28, 2014, subsidiaries of J. Alexanders Holdings, LLC were lessee under both ground leases (the subsidiaries lease the land and build their own buildings) and improved leases (lessor owns the land and buildings) for restaurant locations. These leases are generally operating leases.
Terms for these leases are generally for 15 to 20 years and, in many cases, the leases provide for rent escalations and for one or more five-year renewal options. J. Alexanders Holdings, LLC is generally obligated for the cost of property taxes, insurance, and maintenance. Certain real property leases provide for contingent rentals based upon a percentage of sales. In addition, a subsidiary of J. Alexanders Holdings, LLC is a lessee under other noncancelable operating leases, principally for office space. Amortization of leased assets is included in depreciation and amortization of restaurant property and equipment expense and general and administrative expense in the Consolidated Statements of Operations.
F-24
The following table summarizes future minimum lease payments under capital and operating leases (excluding renewal options), including those restaurants reported as discontinued operations, having an initial term of one year or more:
December 28, 2014 | ||||||||
Capital leases |
Operating
leases |
|||||||
2015 |
$ | 4 | $ | 6,028 | ||||
2016 |
| 5,663 | ||||||
2017 |
| 4,754 | ||||||
2018 |
| 4,201 | ||||||
2019 |
3,185 | |||||||
2020 and thereafter |
| 6,596 | ||||||
|
|
|
|
|||||
Total minimum lease payments (1) |
4 | $ | 30,427 | |||||
|
|
|||||||
Less amount representing interest |
| |||||||
|
|
|||||||
Present value of minimum lease payments |
4 | |||||||
Less current maturities of capitalized lease obligations |
(4 | ) | ||||||
|
|
|||||||
Long-term capitalized lease obligations |
$ | | ||||||
|
|
(1) Total minimum lease payments under operating leases have not been reduced by minimum sublease rentals of $1,108 due in future periods under noncancelable subleases.
For fiscal years 2014 and 2013 and the periods from October 1, 2012 through December 30, 2012, and January 2, 2012 through September 30, 2012, straight-line base rent expense from continuing operations was $6,321, $5,802, $1,115 and $3,011, respectively. In addition to the aforementioned amounts, there was straight-line base rent expense included in discontinued operations of $266, $347, $168 and $503 for fiscal year 2014, fiscal year 2013, the period from October 1, 2012 through December 30, 2012, and the period from January 2, 2012 through September 30, 2012, respectively. There was no significant contingent rent expense for the any of the periods presented.
(13) |
Stock Options |
The Predecessor had equity incentive plans in place, under which directors, officers, and key employees were granted options to purchase shares of J. Alexanders Corporation stock. During the period January 2, 2012 through September 30, 2012, the Predecessor incurred $229 of stock option expense associated with the normal vesting of outstanding options and an additional $563 of accelerated stock option expense associated with the immediate vesting of all options prior to the repurchase of the outstanding options in conjunction with the J. Alexanders Acquisition. The Predecessor paid $7,643 to repurchase those outstanding options, and the repurchase was accounted for as a reduction to additional paid-in capital (APIC). The Predecessor also received the $280 of excess tax benefits associated with the repurchase, which was accounted for as an increase to APIC. Upon the repurchase, the existing plans were terminated. J. Alexanders Holdings, LLC has not put any new stock option plans into place.
(14) |
Membership Equity |
The Members constitute a single class or group of members of J. Alexanders Holdings, LLC, which was formed with a perpetual life. Except as may be provided by the Delaware Limited Liability Company Act, as amended (the Act), no Member of J. Alexanders Holdings, LLC is
F-25
obligated personally for any debt, obligation, or liability of J. Alexanders Holdings, LLC or of any other Member solely by reason of being a Member of J. Alexanders Holdings, LLC. No Member has any responsibility to restore any negative balance in its capital account or contribute to the liabilities or obligations of J. Alexanders Holdings, LLC or return distributions made by J. Alexanders Holdings, LLC, except as may be required by the Act or other applicable law. No Member has any right to resign or withdraw from J. Alexanders Holdings, LLC without the consent of the other Members or to receive any distribution or the repayment of the Members contribution except as provided in the Amended and Restated Limited Liability Company Agreement.
For the period beginning on the J. Alexanders Acquisition Date and continuing through the Contribution Date, FNF owned 100% of the membership interests of J. Alexanders, LLC. Subsequent to the Contribution Date and through August 17, 2014, FNF owned 72.1% of the membership interests directly, and FNH owned 27.9% of the membership interests of J. Alexanders Holdings, LLC. On August 18, 2014, FNH distributed its 27.9% membership interest in J. Alexanders Holdings, LLC on a pro rata basis to the owners of the FNH membership interests. The distribution resulted in FNFV holding an 87.4% membership interest in J. Alexanders Holdings, LLC. Also after the distribution, Newport Global Opportunities Fund AIV-A LP holds a 10.9% membership interest in J. Alexanders Holdings, LLC, and the remaining 1.7% membership interests are held by other minority investors.
(15) |
Income Taxes |
The Predecessor, J. Alexanders Corporation, was organized as a C corporation, and therefore, filed federal and state income tax returns, as required in various jurisdictions. J. Alexanders Corporation was converted to J. Alexanders LLC on October 30, 2012, and thereafter, the filing requirements and related tax liability at both the federal and state level were passed through to FNF. At the Contribution Date, partnership tax treatment became effective, and the federal and state tax filing requirements for J. Alexanders Holdings, LLC went into effect. Although partnership returns for J. Alexanders Holdings, LLC are filed in most jurisdictions, effectively passing the tax liability to the partners, there are a small number of jurisdictions, Tennessee being one of them, that do not recognize limited liability companies structured as partnerships as disregarded entities for state and local income tax purposes. In those jurisdictions, J. Alexanders Holdings, LLC is liable for any applicable state or local income tax. J. Alexanders Holdings, LLC is also liable for franchise taxes in the various jurisdictions in which it operates. A provision for the income tax liability related to these limited state and local jurisdictions has been provided for in the Consolidated Financial Statements for fiscal years 2014 and 2013.
Return-to-provision adjustments have also been made in fiscal year 2013 related to changes in estimates made at the time that the provision for income taxes related to final filings for J. Alexanders Corporation was prepared. Income tax (expense) benefit related to income (loss) before income taxes is as follows:
Year ended
December 28, 2014 |
Year ended
December 29, 2013 |
October 1
through December 30, 2012 |
January 2
through September 30, 2012 |
|||||||||||||
Current federal |
$ | | $ | (225) | $ | | $ | 99 | ||||||||
Current state and local |
(273 | ) | 87 | (1 | ) | (20 | ) | |||||||||
Deferred state and local |
(55 | ) | | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income tax (expense) benefit |
$ | (328 | ) | $ | (138 | ) | $ | (1 | ) | $ | 79 | |||||
|
|
|
|
|
|
|
|
F-26
The effective tax rate differs from the statutory state and local tax rates due to the impact of permanent and temporary tax differences. These permanent tax differences include nondeductible charges for transaction-related expenses, nondeductible charges for meals and entertainment expenses, nondeductible expense related to the amortization of the favorable and unfavorable operating lease assets and liabilities, FICA Tip credit deductions, and life insurance expense. The significant temporary tax differences affecting the tax rate include timing differences related to depreciation and amortization of property and equipment, deferred compensation expense, and deferred rent.
During the period beginning on October 30, 2012 and ending on December 30, 2012, as well as for the period from the beginning of the 2013 fiscal year and ending on the Contribution Date in 2013, the Operating Company was a single member limited liability company, and tax expense was not allocated by FNF to the Operating Company. Had the Operating Company been a separate tax-paying entity, pro forma tax (expense) benefit would have been $(885) and $89, respectively, for these periods.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As discussed above, certain subsidiaries of J. Alexanders Holdings, LLC have filing obligations in the specific jurisdictions that do not recognize these entities as disregarded entities. However, in fiscal 2013, tax liabilities and related deferred tax assets were not significant. Significant components of the deferred tax assets at December 28, 2014 are as follows:
December 28,
2014 |
||||
Deferred tax assets: |
||||
Property, plant and equipment |
$ | 44 | ||
Deferred rent |
57 | |||
Deferred compensation |
70 | |||
Net operating loss carryforwards |
91 | |||
|
|
|||
Total deferred tax assets |
262 | |||
Deferred tax assets valuation allowance |
| |||
|
|
|||
Total net deferred tax assets |
262 | |||
|
|
|||
Deferred tax liabilities: |
||||
Other |
(6 | ) | ||
|
|
|||
Total deferred tax liabilities |
(6 | ) | ||
|
|
|||
Net deferred tax assets |
$ | 256 | ||
|
|
ASC Topic 740, Income Taxes , establishes procedures to measure deferred tax assets and liabilities and assess whether a valuation allowance relative to existing deferred tax assets is necessary. Management assesses the likelihood of realization of the Companys deferred tax assets and the need for a valuation allowance with respect to those assets based on the weight of available positive and negative evidence. At December 28, 2014, management has determined that no valuation allowance is necessary.
F-27
As of the J. Alexanders Acquisition Date, the value of the net deferred tax liability was determined to be $1,588, which was subsequently distributed to FNF upon the conversion of J. Alexanders Corporation to a limited liability company and treatment as a pass-through entity. The components of the net deferred tax liability as of the J. Alexanders Acquisition Date are as follows:
October 1,
2012 |
||||
Deferred tax assets: |
||||
Tax credit carryforwards |
$ | 6,982 | ||
Other |
2,125 | |||
|
|
|||
Total gross deferred tax assets |
9,107 | |||
Deferred tax asset valuation allowance |
| |||
|
|
|||
Total net deferred tax assets |
9,107 | |||
|
|
|||
Deferred tax liabilities: |
||||
Property, plant and equipment |
1,807 | |||
Trademark intangible |
8,850 | |||
Other |
38 | |||
|
|
|||
Total gross deferred tax liabilities |
10,695 | |||
|
|
|||
Net deferred tax liability |
$ | (1,588 | ) | |
|
|
Additionally, J. Alexanders Holdings, LLC has recorded a liability in connection with uncertain tax positions related to state tax issues totaling $0 and $346 as of December 29, 2013 and December 28, 2014, respectively. A reconciliation of the beginning and ending gross amount of unrecognized tax benefit associated with these positions is as follows for the year ended December 28, 2014:
Year ended
December 28, 2014 |
||||
Balance at the beginning of the year |
$ | | ||
Additions based on tax positions taken during the current year |
3,358 | |||
Additions based on tax positions taken during prior years |
1,757 | |||
Reductions related to settlements with taxing authorities and lapses of statutes of limitations |
| |||
|
|
|||
Balance at the end of the year |
$ | 5,115 | ||
|
|
In the period from January 2, 2012 through September 30, 2012, federal and state income taxes of $579 were paid and refunds totaling $254 were received. In the period from October 1, 2012 through December 30, 2012, $1 was paid related to federal and state income taxes and refunds totaling $106 were received. In fiscal year 2013, $45 was paid related to federal, state and local income taxes, and refunds totaling $420 were received. In fiscal year 2014, $92 was paid related to state and local income taxes, and refunds totaling $34 of state and local income tax were received.
The tax years 2010 to 2014 remain open to examination by various taxing jurisdictions.
F-28
(16) |
Contingencies |
(a) |
Contingent Leases |
As a result of the disposition of the Predecessors Wendys operations in 1996, subsidiaries of J. Alexanders LLC may remain secondarily liable for certain real property leases with remaining terms of one to five years. The total estimated amount of lease payments remaining on these seven leases at December 28, 2014 was approximately $500. In connection with the sale of the Predecessors Mrs. Winners Chicken & Biscuit restaurant operations in 1989 and certain previous dispositions, subsidiaries of J. Alexanders LLC also may remain secondarily liable for certain real property leases with remaining terms of one to four years. The total estimated amount of lease payments remaining on this one lease at December 28, 2014 was approximately $300. Additionally, in connection with the previous disposition of certain other Wendys restaurant operations, primarily the southern California restaurants in 1982, subsidiaries of J. Alexanders LLC may remain secondarily liable for certain real property leases with remaining terms of one to five years. The total estimated amount of lease payments remaining on these five leases as of December 28, 2014 was approximately $450. There have been no payments by subsidiaries of J. Alexanders LLC of such contingent liabilities in the history of J. Alexanders LLC. Management does not believe any significant loss is likely.
(b) |
Tax Contingencies |
J. Alexanders Holdings, LLC is subject to real property, personal property, business, franchise and income, and sales and use taxes in various jurisdictions within the United States and is regularly under audit by tax authorities. This is believed to be common for the restaurant industry. Management believes the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial position or results of operations for J. Alexanders Holdings, LLC.
(c) |
Insurance Reserves |
Traditional insurance coverage is maintained for various insurable risks including medical, dental, workers compensation, general liability, liquor liability, employment liability, and property policies. The previous owner of Stoney River did not carry traditional insurance coverage, but rather retained a significant portion of those insurable risks. As such, when Stoney River was contributed to J. Alexanders Holdings, LLC, those risks and related liabilities were also transferred to J. Alexanders Holdings, LLC and were a component in the current liabilities line item included in note 3(b) above. During 2013, Stoney River was transitioned to traditional third-party insurance coverage under J. Alexanders Holdings, LLCs existing policies, and the provisions for losses expected under the prior self-insured programs were adjusted to reflect the known facts and circumstances surrounding each risk. Management believes that the risk of any significant claims being incurred but not reported as of December 28, 2014 is minimal. The total recorded liability for those self-insured risks under the prior programs totaled $18 and $295 at December 28, 2014 and December 29, 2013, respectively.
(d) |
Litigation Contingencies |
J. Alexanders Holdings, LLC and its subsidiaries are defendants from time to time in various claims or legal proceedings arising in the ordinary course of business, including claims relating to workers compensation matters, labor-related claims, discrimination and
F-29
similar matters, claims resulting from guest accidents while visiting a restaurant, claims relating to lease and contractual obligations, federal and state tax matters, and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns, and injury or wrongful death under dram shop laws that allow a person to sue J. Alexanders Holdings, LLC based on any injury caused by an intoxicated person who was wrongfully served alcoholic beverages at one of its restaurants.
Management does not believe that any of the legal proceedings pending against it as of the date of this report will have a material adverse effect on its liquidity or financial condition. J. Alexanders Holdings, LLC may incur liabilities, receive benefits, settle disputes, sustain judgments, or accrue expenses relating to legal proceedings in a particular fiscal year, which may adversely affect its results of operations, or on occasion, receive settlements that favorably affect its results of operations.
(17) |
Related-Party Transactions |
In connection with the Contribution, J. Alexanders Holdings, LLC entered into the FNF Note, which was accounted for as a distribution of capital. The $20,000 note accrues interest at 12.5% annually, and the interest and principal are payable in full on January 31, 2016. Under the terms of the term loan dated September 3, 2013, the FNF Note was subordinated to the term debt. The Loan Agreement included a provision whereby, as long as there were no outstanding events of default, the entire FNF Note could be repaid with proceeds from the ongoing offering transaction and up to $10,000 of the debt associated with the FNF Note could be repaid regardless of whether the offering transaction were to occur. On December 15, 2014, a payment of $14,569, representing $10,000 of principal on the FNF Note and $4,569 of accrued interest, was made to FNF. During fiscal years 2014 and 2013, interest expense of $2,479 and $2,139, respectively, was recorded relative to the FNF Note. At December 28, 2014 and December 29, 2013, a liability of $48 and $2,139, respectively, associated with such interest has been reporting in the Accrued expenses due to related party line item on the Consolidated Balance Sheet.
FNF also bills J. Alexanders Holdings, LLC for expenses incurred or payments made on its behalf by FNF, primarily related to third-party consulting fees and travel expenses for employees and the board of managers. These expenses totaled $14 and $31 for 2014 and 2013, respectively, and no accrual was needed for such costs at December 28, 2014 or December 29, 2013. For the period from October 1, 2012 to December 30, 2012, total expense from these transactions amounted to $841. J. Alexanders Holdings, LLC also reimburses FNF for certain franchise tax payments made on its behalf, and an accrual at December 28, 2014 of $42 is included in the Accrued expenses due to related party line item for such payments.
As discussed in detail in note 3(b) above, Stoney River was contributed to J. Alexanders Holdings, LLC by FNH on the Contribution Date. Subsequent to that date, the former operating parent of Stoney River, ABRH, LLC (ABRH), continued to process transactions for the Stoney River restaurants in order to assist in the transition of point-of-sale systems, the accounts payable function, the payroll function and third-party gift card sales. Although no management or service fees were paid for these services, funds were transferred between ABRH and J. Alexanders Holdings, LLC on a regular basis, and receivables of $150 from ABRH are included in the J. Alexanders Holdings, LLC Consolidated Balance Sheet at December 29, 2013. Further, J. Alexanders Holdings, LLC began utilizing the internal audit function of ABRH to perform internal controls testing on behalf of FNF, as well as to perform certain operational audits at the restaurant level. J. Alexanders Holdings, LLC is billed by ABRH for these services, which totaled $50 and $34 of general and administrative expense for fiscal years 2014 and 2013, respectively,
F-30
and at December 28, 2014 and December 29, 2013, an accrual of $1 and $11 was included in the Accrued expenses due to related party line item on the Consolidated Balance Sheet.
(18) |
Employee Benefit Plans |
J. Alexanders Holdings, LLC maintains a Savings Incentive and Salary Deferral Plan under Section 401(k) of the Internal Revenue Code (the Plan) for the benefit of its employees and their beneficiaries. Under the Plan, qualifying employees can defer a portion of their income on a pretax basis through contributions to the Plan, subject to an annual statutory limit. All employees with at least one thousand hours of service during the 12-month period subsequent to their hire date, or any calendar year thereafter, and who are at least 21 years of age are eligible to participate. For each dollar of participant contributions, up to 3% of each participants salary, J. Alexanders Holdings, LLC makes a minimum 25% matching contribution to the Plan. Matching contributions vest according to a vesting schedule defined in the plan document. Matching contributions totaled $86, $119, $18 and $56 for fiscal year 2014, fiscal year 2013, for the period October 1, 2012 through December 30, 2012, and the period January 2, 2012 through September 30, 2012, respectively.
J. Alexanders Holdings, LLC has Salary Continuation Agreements, which provide retirement and death benefits to executive officers and certain other members of management. The recorded liability associated with these agreements totaled $5,255 and $4,733 at December 28, 2014 and December 29, 2013, respectively. The expense recognized under these agreements was $522, $199, $35 and $488 for fiscal year 2014, fiscal year 2013, the period October 1, 2012 through December 30, 2012, and the period January 2, 2012 through September 30, 2012, respectively.
J. Alexanders Holdings, LLC also has a nonqualified deferred compensation plan under which executive officers and certain senior managers may defer receipt of their compensation, including up to 25% of applicable salaries and bonuses, and be credited with matching contributions under the same matching formula and limitations as the Savings Incentive and Salary Deferral Plan. Amounts that are deferred under this plan, and any matching contributions, are increased by earnings and decreased by losses based on the performance of one or more investment measurement funds elected by the participants from a group of funds, which the plan administrator has determined to make available for this purpose. Participant account balances totaled $300 and $222 at December 28, 2014 and December 29, 2013, respectively.
In 1992, J. Alexanders Corporation established an Employee Stock Ownership Plan (ESOP), which purchased shares of J. Alexanders Corporation common stock from a trust created by the late Jack C. Massey, the former Board Chairman of the Predecessor, and the Jack C. Massey Foundation. In connection with the J. Alexanders Acquisition, this ESOP was terminated, and all vested balances in participants accounts were distributed accordingly. In 2014, a favorable determination letter was received from the Internal Revenue Service approving the termination of this ESOP.
(19) |
Subsequent Events |
On January 1, 2015, J. Alexanders Holdings, LLC adopted an Amended and Restated LLC Agreement and established a profits interest management incentive plan. On the same date grant awards were issued to certain members of management pursuant to that plan. As a result of the grants made on January 1, 2015, an estimated $1,500 of noncash compensation expense will be recognized based on the awards estimated grant-date fair value over the three-year vesting period, with an offsetting credit to membership equity. The Amended and Restated LLC Agreement adopted on January 1, 2015 contained various other changes to provisions, including
F-31
the establishment of the requirement to make tax distributions to the Members of J. Alexanders Holdings, LLC beginning in fiscal 2015. Such distributions will have no impact to net income and are not expected to be a significant use of cash in fiscal 2015.
Subsequent events have been evaluated and disclosed through April 3, 2015, the date of issuance of these Consolidated Financial Statements.
(20) |
Quarterly Results (Unaudited) |
2014 Quarters ended | ||||||||||||||||||||||||||||||||
March 30 | June 29 | September 28 | December 28 | |||||||||||||||||||||||||||||
Net sales |
$ | 52,356 | $ | 49,840 | $ | 46,725 | $ | 53,312 | ||||||||||||||||||||||||
Operating income |
4,911 | 3,303 | 728 | 3,148 | ||||||||||||||||||||||||||||
Income from continuing operations before income taxes |
4,175 | 2,624 | 16 | 2,471 | ||||||||||||||||||||||||||||
Net income (loss) |
4,023 | 2,515 | (215 | ) | 2,192 | |||||||||||||||||||||||||||
2013 Quarters ended | ||||||||||||||||||||||||||||||||
March 31 | June 30 | September 29 | December 29 | |||||||||||||||||||||||||||||
Net sales |
$ | 45,477 | $ | 47,815 | $ | 44,854 | $ | 50,077 | ||||||||||||||||||||||||
Operating income |
2,129 | 1,455 | 102 | 3,971 | ||||||||||||||||||||||||||||
Income from continuing operations before income taxes |
1,684 | 664 | 2,230 | 3,246 | ||||||||||||||||||||||||||||
Net income (loss) |
(1,278 | ) | (871 | ) | 1,749 | 3,301 |
F-32
J. ALEXANDERS HOLDINGS, LLC | ||||||||||||||||
Condensed Consolidated Balance Sheets | ||||||||||||||||
March 29, 2015 and December 28, 2014 | ||||||||||||||||
(Unaudited in thousands) | ||||||||||||||||
Assets |
March 29,
2015 |
December 28,
2014 |
||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 11,955 | $ | 13,301 | ||||||||||||
Accounts and notes receivable |
242 | 250 | ||||||||||||||
Accounts receivable from related party |
11 | | ||||||||||||||
Inventories |
2,115 | 2,306 | ||||||||||||||
Prepaid expenses and other current assets |
4,480 | 3,003 | ||||||||||||||
|
|
|
|
|
||||||||||||
Total current assets |
18,803 | 18,860 | ||||||||||||||
Other assets |
4,322 | 4,405 | ||||||||||||||
Property and equipment, at cost, less accumulated depreciation and amortization of $19,542 and $17,662 as of March 29, 2015 and December 28, 2014, respectively |
86,457 | 86,263 | ||||||||||||||
Goodwill |
15,737 | 15,737 | ||||||||||||||
Trade name and other indefinite-lived intangibles |
25,155 | 25,155 | ||||||||||||||
Deferred charges, less accumulated amortization of $131 and $104 as of March 29, 2015 and December 28, 2014, respectively |
471 | 488 | ||||||||||||||
|
|
|
|
|
||||||||||||
Total assets |
$ | 150,945 | $ | 150,908 | ||||||||||||
|
|
|
|
|
||||||||||||
Liabilities and Membership Equity | ||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable |
$ | 4,155 | $ | 5,719 | ||||||||||||
Accrued expenses and other current liabilities |
9,618 | 12,014 | ||||||||||||||
Accrued expenses due to related party |
384 | 92 | ||||||||||||||
Unearned revenue |
2,586 | 3,466 | ||||||||||||||
Current portion of long-term debt and obligations under capital leases |
1,667 | 1,671 | ||||||||||||||
|
|
|
|
|
||||||||||||
Total current liabilities |
18,410 | 22,962 | ||||||||||||||
Long-term debt and obligations under capital leases, net of portion classified as current |
10,833 | 11,250 | ||||||||||||||
Long-term debt due to related party |
10,000 | 10,000 | ||||||||||||||
Deferred compensation obligations |
5,633 | 5,555 | ||||||||||||||
Other long-term liabilities |
4,278 | 4,252 | ||||||||||||||
|
|
|
|
|
||||||||||||
Total liabilities |
49,154 | 54,019 | ||||||||||||||
Membership equity |
101,791 | 96,889 | ||||||||||||||
|
|
|
|
|
||||||||||||
Total liabilities and membership equity |
$ | 150,945 | $ | 150,908 | ||||||||||||
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
F-33
J. ALEXANDERS HOLDINGS, LLC | ||||||||||||||||
Condensed Consolidated Statements of Operations | ||||||||||||||||
Three Months Ended March 29, 2015 and March 30, 2014 | ||||||||||||||||
(Unaudited in thousands)
|
|
|||||||||||||||
March 29, | March 30, | |||||||||||||||
2015 | 2014 | |||||||||||||||
Net sales |
$ | 56,184 | $ | 52,356 | ||||||||||||
Costs and expenses: |
||||||||||||||||
Cost of sales |
17,447 | 16,374 | ||||||||||||||
Restaurant labor and related costs |
16,415 | 15,425 | ||||||||||||||
Depreciation and amortization of restaurant property and equipment |
1,994 | 1,882 | ||||||||||||||
Other operating expenses |
10,910 | 10,473 | ||||||||||||||
|
|
|
|
|||||||||||||
Total restaurant operating expenses |
46,766 | 44,154 | ||||||||||||||
Transaction and integration expenses |
62 | 1 | ||||||||||||||
General and administrative expenses |
3,977 | 3,286 | ||||||||||||||
Asset impairment charges and restaurant closing costs |
1 | 4 | ||||||||||||||
Pre-opening expense |
2 | | ||||||||||||||
|
|
|
|
|||||||||||||
Total operating expenses |
50,808 | 47,445 | ||||||||||||||
|
|
|
|
|||||||||||||
Operating income |
5,376 | 4,911 | ||||||||||||||
|
|
|
|
|||||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(443) | (759) | ||||||||||||||
Other, net |
28 | 23 | ||||||||||||||
|
|
|
|
|||||||||||||
Total other income (expense) |
(415) | (736) | ||||||||||||||
|
|
|
|
|||||||||||||
Income from continuing operations before income taxes |
4,961 | 4,175 | ||||||||||||||
Income tax (expense) benefit |
(82) | (29) | ||||||||||||||
Loss from discontinued operations, net |
(106) | (123) | ||||||||||||||
|
|
|
|
|||||||||||||
Net income (loss) |
$ | 4,773 | $ | 4,023 | ||||||||||||
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
F-34
F-35
Notes to Unaudited Condensed Consolidated Financial Statements
(1) |
Organization and Business |
On September 26, 2012 (the J. Alexanders Acquisition Date), Fidelity National Financial, Inc. (FNF) acquired substantially all of the outstanding common stock of J. Alexanders Corporation, a publicly traded company, in a tender offer, followed by a merger (the J. Alexanders Acquisition), after which FNF owned all of the outstanding common stock of J. Alexanders Corporation. The outstanding shares of common stock were delisted and deregistered from the NASDAQ Global Select Market, and J. Alexanders Corporation was subsequently converted from a corporation to a limited liability company, J. Alexanders, LLC (the Operating Company), on October 30, 2012. The J. Alexanders Acquisition was treated as an acquisition for accounting purposes with FNF as the acquirer and J. Alexanders Corporation as the acquiree, and resulted in FNF owning a 100% interest in the Operating Company. Purchase accounting was applied as of October 1, 2012, as the four days between the purchase transaction and the beginning of the fourth quarter were not considered significant. FNF also contributed the ownership of the Operating Company to Fidelity National Special Opportunities, Inc. (FNSO), a wholly owned subsidiary of FNF, subsequent to the J. Alexanders Acquisition. FNSO was subsequently converted to Fidelity National Financial Ventures, LLC (FNFV). For purposes of these Condensed Consolidated Financial Statements, FNSO, FNFV and FNF are collectively referred to as FNF. References herein to operations and assets of J. Alexanders Holdings, LLC may also refer to its consolidated subsidiaries.
On February 6, 2013, J. Alexanders Holdings, LLC was formed as a Delaware limited liability company, and on February 25, 2013 (the Contribution Date), 100% of the membership interests of the Operating Company were contributed by FNF to J. Alexanders Holdings, LLC in exchange for a 72.1% membership interest in J. Alexanders Holdings, LLC. Additionally, on February 25, 2013, 100% of the membership interests of Stoney River Management Company, LLC and subsidiaries (Stoney River) were contributed by Fidelity Newport Holdings, LLC (FNH), a majority-owned subsidiary of FNF, to J. Alexanders Holdings, LLC in exchange for a 27.9% membership interest in J. Alexanders Holdings, LLC (the Contribution). J. Alexanders Holdings, LLC then contributed Stoney River to the Operating Company.
On May 6, 2014, FNF converted FNSO to FNFV. Other than certain tax consequences, this change in the organization of the entity holding a majority of the membership interests had no effect on the operations of J. Alexanders Holdings, LLC. On August 18, 2014, FNH distributed its 27.9% membership interest in J. Alexanders Holdings, LLC on a pro rata basis to the owners of the FNH membership interests. The distribution resulted in FNFV holding an 87.4% membership interest in J. Alexanders Holdings, LLC. Also after the distribution, Newport Global Opportunities Fund AIV-A LP (Newport) held a 10.9% membership interest in J. Alexanders Holdings, LLC, and the remaining 1.7% membership interests were held by other minority investors.
On January 1, 2015, J. Alexanders Holdings, LLC adopted an Amended and Restated LLC Agreement (the LLC Agreement) and established a profits interest management incentive plan. The LLC Agreement established two classes of membership units, Class A Units and Class B Units. The existing membership interests held by FNFV, Newport, and other minority investors were converted to Class A Units on a pro rata basis on the effective date of the LLC Agreement, resulting in FNFV holding 13,929,987 Class A Units, Newport holding 1,728,899 Class A Units, and the remaining minority investors holding a total of 271,114 Class A Units. The total Class A Units outstanding at March 29, 2015 is 15,930,000.
F-36
Additionally, profits interest grant awards were issued to certain members of management pursuant to the incentive plan in the form of Class B Units on the effective date of the LLC Agreement. A total of 885,000 Class B Units were issued and outstanding as of March 29, 2015.
From its inception, J. Alexanders has sought to avoid operating as, or being perceived as, a chain concept. The objective from the beginning has been to operate as a collection of restaurants dedicated to providing guests with the highest quality of food, levels of professional service and ambiance in each of the markets being served. In an effort to further this vision, and also to allow selected locations to expand feature menu offerings available to guests on a seasonal or rotational basis, a number of locations previously operated as J. Alexanders restaurants are scheduled to be converted to restaurants operating under the name Redlands Grill. Effective March 9, 2015, the J. Alexanders restaurant on West End Avenue in Nashville, Tennessee began the process of transitioning to a Redlands Grill and the Birmingham, Alabama J. Alexanders began the transition process on March 23, 2015. Management anticipates that use of the Redlands Grill name will also allow for expansion into certain markets which may currently have a J. Alexanders and/or Stoney River Steakhouse and Grill restaurant that might not otherwise have been considered viable for expansion opportunities. Assuming the initial transitions are successfully completed, management anticipates a total of 12 to 15 Redlands Grill locations will be operational by the end of fiscal 2015.
J. Alexanders Holdings, LLC, through the Operating Company and its subsidiaries, owns and operates full-service, upscale restaurants under the J. Alexanders, Redlands Grill and Stoney River Steakhouse and Grill concepts. At March 29, 2015 and December 28, 2014, restaurants operating within the J. Alexanders concept consisted of 29 and 31 restaurants, in 11 and 12 states, respectively, and restaurants operating within the Stoney River Steakhouse and Grill concept consisted of 10 locations within six states. As noted above, during the first quarter of 2015, two locations formerly operated as J. Alexanders restaurants began the transition to Redlands Grill locations. The restaurants are concentrated primarily in the East, Southeast, and Midwest regions of the United States. J. Alexanders Holdings, LLC does not have any restaurants operating under franchise agreements.
On August 15, 2014, J. Alexanders Holdings, Inc., an affiliate of J. Alexanders Holdings, LLC, was incorporated in the state of Tennessee. On October 28, 2014, J. Alexanders Holdings, Inc. filed a registration statement on Form S-1 with the United States Securities and Exchange Commission relating to a proposed initial public offering of its common stock and a restructuring pursuant to which J. Alexanders Holdings, Inc. would become the managing member of J. Alexanders Holdings, LLC. On February 18, 2015, FNF announced its intentions to pursue a spin-off of J. Alexanders Holdings, LLC to shareholders of FNFV as an alternative to the structure in the proposed initial public offering of the J. Alexanders Holdings, Inc. common stock. The structure related to this proposed course of action is currently under evaluation.
(2) |
Basis of Presentation |
(a) |
Interim Financial Statements |
The accompanying unaudited Condensed Consolidated Financial Statements for the three months ended March 29, 2015 and March 30, 2014, have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements and should be read in conjunction with J. Alexanders Holdings, LLCs annual financial statements for the year ended December 28, 2014.
F-37
In the opinion of management, all adjustments (including normal recurring accruals and adjustments) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.
Total comprehensive income or loss is comprised solely of net income or net loss for all periods presented.
(b) |
Principles of Consolidation |
The Condensed Consolidated Financial Statements include the accounts of J. Alexanders Holdings, LLC as well as the accounts of its wholly-owned subsidiaries. All intercompany profits, transactions, and balances between J. Alexanders Holdings, LLC and its subsidiaries have been eliminated. J. Alexanders Holdings, LLC is a majority-owned subsidiary of FNF.
(c) |
Fiscal Year |
The J. Alexanders Holdings, LLC fiscal year ends on the Sunday closest to December 31, and each quarter typically consists of 13 weeks. The three months ended March 29, 2015 and March 30, 2014, each included 13 weeks of operations. Fiscal year 2015 will include 53 weeks of operations, and fiscal year 2014 included 52 weeks of operations.
(d) |
Discontinued Operations |
During the 2013 fiscal year, three underperforming J. Alexanders restaurants were closed. The decision to close these restaurants was the result of an extensive review of the J. Alexanders restaurant portfolio that examined each restaurants recent and historical financial and operating performance, its position in the marketplace, and other operating considerations. Two of these restaurants were considered to be discontinued operations. The $106 and $123 losses from discontinued operations for the three months ended March 29, 2015 and March 30, 2014, respectively, consist solely of exit and disposal costs which are primarily related to continued obligations under leases. There were no related assets reclassified as held for sale related to these closures, as there were no significant remaining assets related to these locations subsequent to the asset impairment charges being recorded at the time of closure in fiscal 2013.
(e) |
Use of Estimates |
Management has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the periods presented to prepare these Condensed Consolidated Financial Statements in conformity with GAAP. Significant items subject to such estimates and assumptions include those related to the accounting for gift card breakage, estimates of useful lives of property and equipment and leasehold improvements, the carrying amount of intangible assets, fair market valuations, determination of lease terms, and accounting for impairment losses, contingencies, and litigation. Actual results could differ from these estimates.
(f) |
Segment Reporting |
J. Alexanders Holdings, LLC owns and operates full-service, upscale restaurants under three concepts exclusively in the United States that have similar economic characteristics,
F-38
products and services, class of customer and distribution methods. J. Alexanders Holdings, LLC believes it meets the criteria for aggregating its operating segments into a single reportable segment.
(3) |
Significant Transactions |
(a) |
Transaction and Integration Costs and Deferred Offering Costs |
As discussed in the footnotes to our Consolidated Financial Statements for the year ended December 28, 2014, transaction and integration costs were incurred in fiscal 2014 as indirect costs related to the offering transaction discussed in Note 1 above. Additionally, during the first three months of fiscal 2015, transaction costs associated with the potential spin-off transaction were incurred. Such transaction costs totaled $62 and $1 for the three months ended March 29, 2015 and March 30, 2014, respectively. Transaction costs typically consist primarily of legal and consulting costs, accounting fees, accelerated expense associated with repurchased stock options, and to a lesser extent other professional fees and miscellaneous costs. Integration costs typically consist primarily of consulting and legal costs.
Deferred offering costs, which primarily consist of direct, incremental legal and accounting fees relating to the pursuit of an initial public offering, are capitalized within other current assets. Such deferred offering costs would be offset against proceeds upon the consummation of an offering . In the event the offering is terminated, deferred offering costs will be expensed. J. Alexanders Holdings, LLC has incurred $1,675 in such costs as of March 29, 2015.
(b) |
Profits Interest Plan |
As discussed in Note 1 above, on January 1, 2015, a profits interest management incentive plan was adopted, and grants of a total of 885,000 Class B Units were issued to certain members of management pursuant to said plan. The applicable hurdle rate for these Class B Units is $180,000, and the grants vest over a three-year period beginning on January 1, 2015, with 50% becoming vested after two years and the remaining 50% vesting at the end of the third year. As a result of the grants made on January 1, 2015, an estimated $1,500 of noncash compensation expense will be recognized based on the awards estimated grant-date fair value over the three-year vesting period, with an offsetting credit to membership equity.
(4) |
Fair Value Measurements |
As of March 29, 2015 and March 30, 2014, the fair value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximated their carrying value due to their short-term nature. The carrying amounts of the long-term mortgage debt approximate fair value as interest rates and negotiated terms and conditions are consistent with current market rates, as evidenced by the close proximity of recent refinancing transactions to the dates of these Condensed Consolidated Financial Statements.
(5) |
Income Taxes |
J. Alexanders Holdings, LLC is a limited liability company. For federal and most state and local taxing jurisdictions in which J. Alexanders Holdings, LLC operates, the revenues, expenses, and credits of a limited liability company are allocated to its members, and therefore, no provision,
F-39
assets or liabilities have been recorded in the accompanying Condensed Consolidated Financial Statements for these specific jurisdictions since the conversion of the Operating Company and subsidiaries to limited liability companies.
Although partnership returns for J. Alexanders Holdings, LLC are filed in most jurisdictions, effectively passing the tax liability to the partners, there are a small number of jurisdictions, Tennessee being one of them, that do not recognize limited liability companies structured as partnerships as disregarded entities for state and local income tax purposes. In those jurisdictions, J. Alexanders Holdings, LLC is liable for any applicable state or local income tax. J. Alexanders Holdings, LLC is also liable for franchise taxes in the various jurisdictions in which it operates. A provision for the income tax liability related to these limited state and local jurisdictions has been provided for in the Condensed Consolidated Financial Statements for the three months ended March 29, 2015 and March 30, 2014.
The tax years 2010 to 2014 remain open to examination by various taxing jurisdictions.
The LLC Agreement adopted on January 1, 2015 established the requirement to make tax distributions to the Members of J. Alexanders Holdings, LLC beginning in fiscal 2015. Such distributions will have no impact to net income and are not expected to be a significant use of cash in fiscal 2015.
(6) |
Contingencies |
(a) |
Contingent Leases |
As a result of the disposition of the Predecessors Wendys operations in 1996, subsidiaries of J. Alexanders, LLC may remain secondarily liable for certain real property leases with remaining terms of one to five years. The total estimated amount of lease payments remaining on these six leases at March 29, 2015 was approximately $1,300. In connection with the sale of the Predecessors Mrs. Winners Chicken & Biscuit restaurant operations in 1989 and certain previous dispositions, subsidiaries of J. Alexanders, LLC also may remain secondarily liable for certain real property leases with remaining terms of one to four years. The total estimated amount of lease payments remaining on this one lease at March 29, 2015 was approximately $300. Additionally, in connection with the previous disposition of certain other Wendys restaurant operations, primarily the southern California restaurants in 1982, subsidiaries of J. Alexanders, LLC may remain secondarily liable for certain real property leases with remaining terms of one to five years. The total estimated amount of lease payments remaining on these five leases as of March 29, 2015 was approximately $600. There have been no payments by subsidiaries of J. Alexanders, LLC of such contingent liabilities in the history of J. Alexanders, LLC. Management does not believe any significant loss is likely.
(b) |
Tax Contingencies |
J. Alexanders Holdings, LLC is subject to real property, personal property, business, franchise and income, and sales and use taxes in various jurisdictions within the United States and is regularly under audit by tax authorities. This is believed to be common for the restaurant industry. Management believes the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial position or results of operations for J. Alexanders Holdings, LLC.
F-40
(c) |
Litigation Contingencies |
J. Alexanders Holdings, LLC and its subsidiaries are defendants from time to time in various claims or legal proceedings arising in the ordinary course of business, including claims relating to workers compensation matters, labor-related claims, discrimination and similar matters, claims resulting from guest accidents while visiting a restaurant, claims relating to lease and contractual obligations, federal and state tax matters, and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns, and injury or wrongful death under dram shop laws that allow a person to sue J. Alexanders Holdings, LLC based on any injury caused by an intoxicated person who was wrongfully served alcoholic beverages at one of its restaurants.
Management does not believe that any of the legal proceedings pending against it as of the date of this report will have a material adverse effect on its liquidity or financial condition. J. Alexanders Holdings, LLC may incur liabilities, receive benefits, settle disputes, sustain judgments, or accrue expenses relating to legal proceedings in a particular fiscal year, which may adversely affect its results of operations, or on occasion, receive settlements that favorably affect its results of operations.
(7) |
Related-Party Transactions |
In connection with the Contribution, J. Alexanders Holdings, LLC entered into the FNF Note, which was accounted for as a distribution of capital. The $20,000 note accrues interest at 12.5% annually, and the interest and principal are payable in full on January 31, 2016. Under the terms of J. Alexanders, LLCs term loan dated September 3, 2013, the FNF Note was subordinated to the term debt. The Amended and Restated Loan Agreement dated December 9, 2014, included a provision whereby, as long as there were no outstanding events of default, the entire FNF Note could be repaid with proceeds from the ongoing offering transaction and up to $10,000 of the debt associated with the FNF Note could be repaid regardless of whether the offering transaction were to occur. On December 15, 2014, a payment of $14,569, representing $10,000 of principal on the FNF Note and $4,569 of accrued interest, was made to FNF. During the three months ended March 29, 2015 and March 30, 2014, interest expense of $316 and $632, respectively, was recorded relative to the FNF Note. At March 29, 2015 and December 28, 2014, a liability of $364 and $48, respectively, associated with such interest has been reporting in the Accrued expenses due to related party line item on the Condensed Consolidated Balance Sheet.
FNF also bills J. Alexanders Holdings, LLC for expenses incurred or payments made on its behalf by FNF, primarily related to third-party consulting fees, travel expenses for employees and the board of managers, and franchise tax payments. These expenses totaled $3 and $7 for the three months ended March 29, 2015 and March 30, 2014, respectively, and an accrual of $20 and $42 was needed for such costs at March 29, 2015 and December 28, 2014, respectively.
(8) |
Subsequent Events |
Subsequent to March 29, 2015, J. Alexanders, LLC entered into a financing arrangement with the financial institution that is the lender on its existing term loan and lines of credit. Under the terms of the new credit facility dated May 20, 2015, the existing Development Line of Credit was increased from $15,000 to $20,000, with no other significant changes in terms. Further, a new $10,000 term loan was put into place, the purpose of which is to refinance the remaining $10,000 principal balance of the existing FNF Note which was scheduled to mature on January 31, 2016. As the FNF Note was refinanced with a long-term obligation subsequent to the balance sheet
F-41
date of March 29, 2015, it is not classified as a current liability in the accompanying Condensed Consolidated Financial Statements. The new $10,000 term loan bears interest at a rate of 30-day LIBOR plus 220 basis points on a floating rate basis, and requires interest only payments for the first two years and then combined principal and interest payments beginning in month 25 with a final payment due on the 60-month maturity date. Additionally, three J. Alexanders restaurant properties were added as collateral in this refinancing, bringing the total of the collateral package to the personal and real property of 12 restaurant locations for all of J. Alexanders, LLCs term loans and revolving lines of credit. The aggregate maturities of long-term debt for the next five fiscal years giving effect to this refinancing are as follows:
2015* |
$1,250 |
|
2016 |
$1,667 |
|
2017 |
$3,889 |
|
2018 |
$5,000 |
|
2019 |
$5,000 |
|
thereafter |
$5,694 |
* 2015 includes remaining nine months of maturities.
F-42